UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-04375
Name of Fund: Merrill Lynch Multi-State Municipal Series Trust
Merrill Lynch Florida Municipal Bond Fund
Merrill Lynch New Jersey Municipal Bond Fund
Merrill Lynch Pennsylvania Municipal Bond Fund
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., Chief Executive
Officer, Merrill Lynch Multi-State Municipal Series Trust, 800 Scudders
Mill Road, Plainsboro, NJ 08536. Mailing address: P.O. Box 9011,
Princeton, NJ 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 07/31/06
Date of reporting period: 08/01/05 - 07/31/06
Item 1 - Report to Stockholders
Annual Reports
July 31, 2006
Merrill Lynch Florida Municipal Bond Fund
Merrill Lynch New Jersey Municipal Bond Fund
Merrill Lynch Pennsylvania Municipal Bond Fund
Of Merrill Lynch Multi-State Municipal Series Trust
Merrill Lynch Florida Municipal Bond Fund
Merrill Lynch New Jersey Municipal Bond Fund
Merrill Lynch Pennsylvania Municipal Bond Fund
Announcement to Shareholders
On February 15, 2006, BlackRock, Inc. ("BlackRock") and Merrill Lynch & Co.,
Inc. ("Merrill Lynch") entered into an agreement to contribute Merrill Lynch's
investment management business, Merrill Lynch Investment Managers, L.P. and
certain affiliates (including Fund Asset Management, L.P. and Merrill Lynch
Investment Managers International Limited), to BlackRock to create a new
independent company ("New BlackRock") that will be one of the world's largest
asset management firms with over $1 trillion in assets under management (based
on combined assets under management as of June 30, 2006) (the "Transaction").
The Transaction is expected to close around the end of the third quarter of
2006, at which time the new company will operate under the BlackRock name. The
Board of Trustees and shareholders have approved new investment advisory
agreements with BlackRock Advisors, Inc. or its successor on substantially the
same terms and for the same advisory fee as the current investment advisory
agreement with the Investment Adviser. BlackRock Advisors, Inc. or its successor
is expected to become the investment adviser of the Funds upon the closing of
the Transaction.
Proxy Results
During the six-month period ended July 31, 2006, shareholders of Merrill Lynch
Florida Municipal Bond Fund of Merrill Lynch Multi-State Municipal Series Trust
voted on the following proposals. With respect to Proposals 1 and 3, the meeting
on July 31, 2006 was adjourned until August 31, 2006. A description of the
proposals and number of shares voted were as follows:
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Shares Voted Shares Voted Shares Voted
For Against Abstain
- -------------------------------------------------------------------------------------------------------
1. To approve a new investment advisory agreement 6,714,078 126,160 190,766
- -------------------------------------------------------------------------------------------------------
3. To approve a contingency subadvisory agreement 6,664,366 143,875 222,763
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During the six-month period ended July 31, 2006, shareholders of Merrill Lynch
New Jersey Municipal Bond Fund of Merrill Lynch Multi-State Municipal Series
Trust voted on the following proposals. Proposals 1 and 3 were approved at a
shareholders' meeting on July 31, 2006. A description of the proposals and
number of shares voted were as follows:
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Shares Voted Shares Voted Shares Voted
For Against Abstain
- -------------------------------------------------------------------------------------------------------
1. To approve a new investment advisory agreement. 6,213,996 220,737 192,616
- -------------------------------------------------------------------------------------------------------
3. To approve a contingent subadvisory agreement 6,203,825 225,683 197,840
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During the six-month period ended July 31, 2006, shareholders of Merrill Lynch
Pennsylvania Municipal Bond Fund of Merrill Lynch Multi-State Municipal Series
Trust voted on the following proposals. Proposals 1 and 3 were approved at a
shareholders' meeting on July 31, 2006. A description of the proposals and
number of shares voted were as follows:
- -------------------------------------------------------------------------------------------------------
Shares Voted Shares Voted Shares Voted
For Against Abstain
- -------------------------------------------------------------------------------------------------------
1. To approve a new investment advisory agreement. 3,627,411 256,060 89,844
- -------------------------------------------------------------------------------------------------------
3. To approve a contingent subadvisory agreement 3,624,464 261,130 87,721
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2 ANNUAL REPORTS JULY 31, 2006
A Letter From the President
Dear Shareholder
By now, you have probably heard of the important changes unfolding at Merrill
Lynch Investment Managers ("MLIM"). We have been communicating with
shareholders, via letters like this and in a detailed proxy mailing, about
MLIM's impending union with another highly regarded investment manager --
BlackRock, Inc. ("BlackRock"). This transaction marks the next chapter in MLIM's
growth story and, we believe, will be a benefit to our investors.
MLIM, a division of Merrill Lynch with over $583 billion in assets under
management, is a leading investment manager offering more than 100 investment
strategies in vehicles ranging from mutual funds to institutional portfolios.
BlackRock, with $464.1 billion in assets under management, is one of the largest
publicly traded investment management firms in the United States managing assets
on behalf of institutional and individual investors worldwide through a variety
of equity, fixed income, liquidity and alternative investment products. At the
completion of the transaction, which is expected around the end of the third
quarter of 2006, the resultant firm will be a top-10 investment manager
worldwide with over $1 trillion in assets under management.*
The combined company, to be known as BlackRock, will provide a wide selection of
high-quality investment solutions across a range of asset classes and investment
styles. The organization will have over 4,500 employees in 18 countries and a
major presence in key markets worldwide. MLIM and BlackRock possess
complementary capabilities that together create a well-rounded organization
uniting some of the finest money managers in the industry. The firms share
similar values and beliefs -- each strives for excellence in all areas, and both
make investment performance their single most important mission. As such, our
combination only reinforces our commitment to shareholders.
Most of MLIM's investment products -- including mutual funds, separately managed
accounts, annuities and variable insurance funds -- eventually will carry the
"BlackRock" name. This will be reflected in newspaper and online information
sources beginning in October. Your account statements will reflect the BlackRock
name beginning with the October month-end reporting period. Unless otherwise
communicated via a proxy statement, your funds will maintain the same investment
objectives that they do today. Importantly, the MLIM/BlackRock union will not
affect your brokerage account or your relationship with your financial advisor.
If you are a client of Merrill Lynch, you will remain a client of Merrill Lynch.
As always, we thank you for entrusting us with your investment assets. We look
forward to continuing to serve your investment needs with even greater strength
and scale as the new BlackRock.
Sincerely,
/s/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
President and Chief Investment Officer
Merrill Lynch Investment Managers
* $1.047 trillion in assets under management as of June 30, 2006.
Data, including assets under management, are as of June 30, 2006.
ANNUAL REPORTS JULY 31, 2006 3
A Discussion With Your Funds' Portfolio Managers
The Funds adopted a neutral stance on interest rates as the Federal
Reserve Board approached a pause in its prolonged interest rate tightening
campaign.
Discuss the recent market environment relative to municipal bonds.
During the past 12 months, long-term bond yields rose sharply while their
prices, which move in the opposite direction, declined. The drop in bond prices
largely reflects investors' focus on solid economic growth. Despite a decline in
gross domestic product growth between the first and second quarters of 2006,
U.S. economic activity so far this year has outpaced the 3.2% annual growth rate
posted in 2005. Rising commodity prices also have stoked inflationary fears,
further weighing on bond prices.
The Federal Reserve Board (the Fed) continued to raise short-term interest rates
at each of its meetings during the past year, bringing the federal funds rate to
5.25%. Consequently, the yield curve continued to flatten, with short-term
interest rates rising more than longer-term interest rates. Overall, 30-year
U.S. Treasury bond yields rose 60 basis points (.60%) during the 12-month period
to 5.07%, while 10-year U.S. Treasury note yields rose 71 basis points to 4.99%.
Municipal bond yields also rose in recent months, although the tax-exempt
market's strong technical position provided significant price support. This
allowed municipal bond prices to decline less than their taxable counterparts.
As measured by Municipal Market Data, yields on AAA-rated issues maturing in 30
years rose just 12 basis points to 4.47%, and yields on AAA-rated issues
maturing in 10 years rose 33 basis points to 3.99%.
The rise in yields prompted a revival in investor demand for municipal bonds.
The increased demand also was triggered by seasonal factors that served to
generate large cash flows into investor accounts. Investors received more than
$40 billion in June and July from coupon income and the proceeds from bond
maturities and early redemptions. Consequently, municipal bond fund flows have
continued to be supportive. As reported by the Investment Company Institute,
open-end tax-exempt bond funds received net new cash inflows of over $6.5
billion in the first six months of 2006, compared to $2.5 billion during the
same period in 2005.
Also contributing to the outperformance of the municipal bond market has been
declines in new issuance. During the past six months, more than $189 billion in
new long-term tax-exempt bonds was underwritten, a decline of 14% compared to
the same period a year earlier. Recent declines in issuance have largely been
the result of a 57% drop in refunding activity so far this year. Rising bond
yields have made the refinancing of existing higher-couponed debt issues
increasingly problematic, as the potential economic savings have rapidly
diminished. In addition, the improved fiscal condition of many state and local
governments has resulted in lower borrowing trends, with many new municipal
capital projects being financed from existing budget surpluses. The declines in
issuance have led many analysts to lower their annual issuance forecasts to the
$300 billion - $325 billion range. Lower annual issuance would further solidify
the tax-exempt market's already positive technical position.
Looking ahead, municipal market fundamentals are likely to remain favorable,
leading us to expect the tax-exempt market to perform at least as well as
comparable U.S. Treasury issues. Attractive yield ratios have continued to draw
both retail and institutional investors to the municipal market. Based on this,
and the prospect for reduced annual issuance in 2006, we believe the municipal
market should continue to perform well in the coming months.
4 ANNUAL REPORTS JULY 31, 2006
Merrill Lynch Florida Municipal Bond Fund
Describe conditions in the State of Florida.
Florida maintains ratings of Aa1, AAA and AA+ from Moody's, Standard & Poor's
and Fitch, respectively. Governor Jeb Bush has proposed a $70.8 billion budget
for fiscal year 2006 - 2007, representing an increase of $4.5 billion from the
prior year. The budget reflects spending constraints, tax cuts, bolstered
reserves and increased revenue growth, while keeping spending below anticipated
personal income growth. Because the state's increased revenue sources are not
all permanent, funds will be set aside to finance new programs in the future.
Fiscal discipline has allowed the state to offer tax relief to its residents and
businesses in the form of tax credits, tax-free shopping days and reduced sales
tax on equipment. Three areas of the budget account for 90% of the state's total
expenditures: education at 49%, health and human services at 27% and public
safety at 14%. Florida was projected to end fiscal year 2005 - 2006 with an
operating surplus and increases in both general fund reserves and the budget
stabilization fund. This year represented the last in which the state would
impose the intangible tax on all Floridians. Although the tax is not a major
revenue stream, no new tax has been proposed, and it is too early to determine
if the loss of the intangible tax will have a meaningful effect on the state's
finances.
Florida's economy continues to outperform that of both the nation and other
southern states. Job creation among diversified industries has encouraged
migration into the state, promoting diverse demographic trends. Although
national economic trends have put pressure on the state, we believe Florida is
well positioned given its record of proactive management and financial
flexibility.
How did the Fund perform during the fiscal year?
For the 12-month period ended July 31, 2006, Merrill Lynch Florida Municipal
Bond Fund's Class A, Class B, Class C and Class I Shares had total returns of
+2.49%, +2.08%, +1.98% and +2.60%, respectively. (Fund results shown do not
reflect sales charges and would be lower if sales charges were included.
Complete performance information can be found on pages 10 - 13 of this report to
shareholders.) For the same period, the Lehman Brothers Municipal Bond Index
returned +2.55% and the Lipper Florida Municipal Debt Funds category posted an
average return of +2.43%. The Lehman Brothers Municipal Bond Index measures the
performance of municipal bonds in all 50 states whereas the Lipper category
tracks funds that limit their investment to those securities exempt from
taxation in the State of Florida.
The Fund provided competitive returns for the 12-month period, reflecting a
continuation of the trends discussed in our semi-annual report to shareholders.
Performance was driven by our positions in land-secured bonds, an area of the
market we have favored for several years. These issues outperformed as credit
spreads (versus higher-quality issues of comparable maturity) narrowed over the
past 12 months. In addition, most of our holdings in this sector are in the long
end of the yield curve, which continued to outperform the rest of the curve as
it flattened. These land-secured bonds also have an attractive yield component.
This complements our long-term commitment to providing shareholders with an
above-average yield, and continued to provide an incremental advantage to the
portfolio.
What changes were made to the portfolio during the period?
For most of the year, we generally focused on premium-coupon bonds in the
20-year - 25-year maturity range whenever they became available. This was
consistent with our goal of increasing the income provided to shareholders and
muting the Fund's net asset value volatility, particularly as the yield curve
flattened. However, as the year progressed, we began to see some opportunity in
the 15-year - 20-year area of the curve. This maturity range suffered most under
the weight of the Fed's interest rate hikes and, we believe, could be poised for
strong relative performance as the yield curve resteepens.
Issuance of Florida municipal bonds increased approximately 31% during the
period compared to the same 12 months a year ago. However, as has been the case
for some time, few new issues met our desired investment characteristics. Much
of the supply came in the form of refinancings, and the majority of the new
issues offered yields below 5%. We were not inclined to give up bonds booked in
the portfolio at higher yields in order to take advantage of the new-issue
calendar. Importantly, we remained fully invested throughout the year in order
to augment yield and cautiously took advantage of the Fund's uninsured basket in
adding higher-yielding credits to the portfolio.
ANNUAL REPORTS JULY 31, 2006 5
A Discussion With Your Funds' Portfolio Managers (continued)
How would you characterize the Fund's position at the close of the period?
We would characterize the Fund's position as fairly neutral in terms of interest
rate risk. We are continuing in our efforts to increase the Fund's exposure to
bonds with maturities in the 10-year - 20-year range. At the same time, to
enhance yield, we are looking to add some 20-year - 30-year bonds with coupons
in the area of 5.25%, without paying a premium to the AAA scale.
Although the Fed paused in its interest rate-hiking campaign on August 8, 2006,
leaving the federal funds rate unchanged at 5.25%, the central bank has
indicated that it will continue to look at economic and inflationary data for
signposts in determining future monetary policy. As such, we would expect the
U.S. equity and bond markets to remain volatile as investors continue to
anticipate and react to economic data and Fed actions. Against this backdrop, we
will continue to maintain a fully invested portfolio and intend to use periods
of volatility to pursue higher-coupon bonds whenever they are attractively
priced.
Merrill Lynch New Jersey Municipal Bond Fund
Describe conditions in the State of New Jersey.
Jon Corzine claimed victory in the state's November gubernatorial election and,
upon beginning his term in January, immediately faced the challenges of the
fiscal year 2007 budget. By the end of the second calendar quarter, New Jersey
failed to adopt a balanced budget for the new fiscal year (beginning July 1).
The point of contention was Governor Corzine's proposal to raise the state sales
tax to 7% from 6%. In light of the impasse, the governor ordered a shutdown of
non-essential state services for several days in early July until an agreement
could be reached with the State Assembly. In the past, deficit financing had
served as one alternative to deadlocked budget negotiations; however, the New
Jersey Supreme Court had recently prohibited the state from borrowing in order
to balance budgets. Nevertheless, throughout the shutdown, the rating agencies
maintained the state's ratings and outlook.
Ultimately, a $31 billion budget was adopted for fiscal year 2007. The 1% sales
tax increase was implemented and is expected to generate roughly $1.2 billion in
income. As part of the agreement with the Assembly, one-half of the new sales
tax receipts will be allocated to property tax rebates. The budget also includes
tax increases and surcharges on various items, such as cigarettes, car rentals
and luxury goods. Other key components in reducing the projected $4.5 billion
budget gap included approximately $2 billion in spending reductions and freezes.
The budget keeps state aid to municipalities and school districts essentially
flat for another year and, as such, local property taxes are likely to increase.
The budget also contributes $1.1 billion into the state pension system,
exceeding the entire amount allocated in the past 10 years. The adopted budget
significantly reduces reliance on one-time revenues and, therefore, is more
structurally balanced than the state's last several budgets -- a positive from a
credit rating perspective.
New Jersey has a high and growing debt burden compared to similarly rated
states. In addition, the state recently started a five-year, $6 billion debt
financing program for transportation projects, and funding of billions of
dollars in court-mandated school construction projects is yet to be determined.
6 ANNUAL REPORTS JULY 31, 2006
How did the Fund perform during the fiscal year?
For the 12-month period ended July 31, 2006, Merrill Lynch New Jersey Municipal
Bond Fund's Class A, Class B, Class C and Class I Shares had total returns of
+3.55%, +3.03%, +2.83% and +3.46%, respectively. (Fund results shown do not
reflect sales charges and would be lower if sales charges were included.
Complete performance information can be found on pages 10 - 13 of this report to
shareholders.) For the same period, the Lehman Brothers Municipal Bond Index
returned +2.55% and the Fund's comparable Lipper category of New Jersey
Municipal Debt Funds posted an average return of +2.19%. Unlike the Lehman
Brothers Municipal Bond Index, which measures the performance of municipal bonds
nationally, the Lipper category consists of funds that limit their investment to
securities exempt from taxation in the State of New Jersey.
Fund performance benefited from the continued contraction of credit spreads in
the municipal market, which had a favorable impact on our positions in high
yield, lower-rated and unrated municipal securities. The greatest contribution
to performance came from the Fund's positions in airline-related debt. Spread
compression in this sector served to enhance the Fund's total return while also
facilitating a competitive distribution yield. Additionally, our yield curve
strategy, which involved significant exposure to longer-dated securities for
much of the year, continued to benefit performance as the curve flattened and
the longer end outperformed.
What changes were made to the portfolio during the period?
We pursued a fairly conservative investment strategy with respect to interest
rate exposure throughout the past 12 months, maintaining a neutral to somewhat
defensive duration for a good portion of the year. Typically, this was achieved
through the use of hedging strategies, which allowed us to continue to focus on
longer-dated bonds without extending the overall duration of the portfolio.
For most of the fiscal year, the portfolio was positioned for the yield curve
flattening we had anticipated. We saw little need to make significant changes as
the Fed tirelessly increased interest rates and the long end of the curve
outperformed. In more recent months, however, as the Fed approached the end of
its monetary tightening campaign and the curve appeared ready to resteepen, we
began to see opportunities in the intermediate maturity range. This is an area
that had suffered most as rates rose and, in a resteepening scenario, could be
positioned for strong relative performance. To take advantage, in the final
three months of the fiscal year, we focused mainly on trimming some of the
short-term investments in the portfolio, particularly bonds that are callable or
likely to be called within the next year or two. With the proceeds, we invested
in bonds in the 10-year - 15-year portion of the curve. Despite a decline in new
municipal bond issuance, we had little trouble finding opportunities in this
maturity range.
In terms of the Fund's credit profile, we made inroads in pursuit of a more
conservative profile by reducing exposure to some of our lower-rated credits. We
will continue to reduce exposure to the high yield sector, as we believe the
cycle of outperformance is nearing an end.
How would you characterize the Fund's position at the close of the period?
At the end of the period, the Fund remained relatively neutral with respect to
interest rate risk. As mentioned earlier, our yield curve outlook changed toward
the end of the period on speculation that the Fed may be close to ending its
monetary tightening program. This pause in policy tightening came on August 8,
2006, affirming our revised yield curve strategy. Still, there remains
uncertainty as to whether the Fed will pursue additional interest rate hikes
down the road, as Chairman Bernanke and the governors have indicated that they
will let the economic and inflationary data guide their interest rate decisions.
Having said that, the consensus expectation is that economic growth will
continue to moderate, thereby alleviating inflationary pressures and
discouraging the Fed from pursuing further interest rate hikes. In general, the
Fed's pause leaves us feeling somewhat more constructive on the market, and we
will look for opportunities to reposition the portfolio in accordance with that
view.
ANNUAL REPORTS JULY 31, 2006 7
A Discussion With Your Funds' Portfolio Managers (concluded)
Merrill Lynch Pennsylvania Municipal Bond Fund
Describe conditions in the Commonwealth of Pennsylvania.
Pennsylvania continued to protect its Aa2/AA/AA credit profile, as assigned by
the three major credit-rating agencies, through conservative budgeting
practices, a more diversified service economy and maintenance of a relatively
low debt burden. Importantly, Governor Ed Rendell's economic stimulus plans over
the next several years include $2 billion in debt issuance to fund programs
ranging from venture capital guarantees and real estate development to
strengthening the tourism and agricultural bases. While planned debt issuance is
substantial and appropriation-backed financing is a departure from historical
practice, the commonwealth's policy is to keep debt service to no more than 4%
of revenues.
Pennsylvania's General Fund budget for 2006 - 2007 is $26.1 billion, an increase
of 5.8% over the prior period's available budget. Not surprisingly in this
gubernatorial election year, the 2006 - 2007 budget has no new taxes or tax
increases. Instead, there are provisions for some small business tax cuts and a
senior property tax rebate program. Under newly enacted Act 1, expanded property
tax rebates will initially be financed by a state lottery surplus from newly
legalized slot machines. The new gaming revenues are expected to flow in 2008,
providing for an estimated average reduction of $200 in homeowners' school
property tax bills. Furthermore, Act 1 requires school boards to seek voter
approval for tax increases that exceed inflation except for certain reasons. In
addition, the law requires most school districts in 2007 to ask voters whether
they want to cut property taxes further by increasing local income taxes.
From a fiscal perspective, fiscal year 2006 revenue collections were $864
million, or 3.5% above original estimates. This was primarily led by strength in
corporate and personal income tax collections. On the employment front,
broad-based job growth continues to be a favorable trend in the Keystone State.
Pennsylvania's unemployment rate was 4.8% in May 2006, down from 5.0% in May
2005. Personal income growth of 1.5% trailed the U.S. average growth rate of
2.3% (in the fourth quarter of 2005), but overall reflects a wealth level on par
with the nation.
How did the Fund perform during the fiscal year?
For the 12-month period ended July 31, 2006, Merrill Lynch Pennsylvania
Municipal Bond Fund's Class A, Class B, Class C and Class I Shares had total
returns of +2.49%, +2.07%, +2.06% and +2.59%, respectively. (Fund results shown
do not reflect sales charges and would be lower if sales charges were included.
Complete performance information can be found on pages 10 - 13 of this report to
shareholders.) For the same period, the benchmark Lehman Brothers Municipal Bond
Index, which measures the performance of municipal bonds nationwide, returned
+2.55%. The Lipper Pennsylvania Municipal Debt Funds category had an average
return of +2.10% for the 12-month period. Unlike the Lehman Brothers Municipal
Bond Index, the Lipper category consists of funds that limit their investment to
those securities exempt from taxation in Pennsylvania.
The Fund's competitive returns were driven by our focus on the long end of the
yield curve, which outperformed the shorter end as the curve continued to
flatten. Furthermore, recent performance has largely reflected the Fund's
above-average income component compared to its peers, and strong price
performance in the portfolio's lower-rated issues. As credit spreads continued
to contract in the municipal bond market, lower-quality issues outperformed.
Detracting from performance in the first half of the fiscal year was the early
call of a large position representing 4% of the portfolio and with an average
coupon of 6.87%. Such yields were not available in the prevailing environment,
forcing us to reinvest the proceeds in issues with average coupons of about 5%.
What changes were made to the portfolio during the period?
We made few changes to the portfolio during the 12-month period. We focused
primarily on protecting the Fund's net asset value and providing shareholders
with above-average income. We continued to emphasize longer-dated bonds,
typically in the 25-year - 30-year maturity range, as the yield curve flattened.
The long end of the curve remained fairly steep and also has been less subject
to bouts of volatility, allowing us the opportunity to add incremental yield
while also muting the Fund's price volatility.
8 ANNUAL REPORTS JULY 31, 2006
For the most part, new issues in Pennsylvania consisted of shorter-dated,
high-quality bonds, which didn't meet our desired investment characteristics.
During the second quarter of 2006, issuance by Pennsylvania municipalities was
down 15%, while national bond issuance levels were little changed. Approximately
1.5% of the Fund's assets were called during the second quarter of 2006. The
proceeds from these calls were used to purchase insured issues in the 25-year -
30-year maturity range.
We maintained ample exposure to tax-exempt bonds issued by the Commonwealth of
Puerto Rico. We believe the case for continued investment in Puerto Rico bonds
remains strong, as its legislature has recently undertaken significant measures
in an effort to boost the commonwealth's credit quality.
How would you characterize the Fund's position at the close of the period?
We expect the bond market to remain volatile until economic conditions in the
United States stabilize. It appears that domestic economic activity is slowing,
but it is not yet clear whether it is doing so at a rate slow enough to allay
inflationary fears. The Fed acknowledged the slowing economic growth when it
opted not to raise the federal funds rate at its meeting on August 8. However,
as long as the balance between slowing economic growth and above-trend inflation
remains unresolved, we expect price volatility in the bond market to persist.
The municipal market will not be immune from these fluctuations, although price
volatility in tax-exempt issues is expected to be less than that seen in taxable
issues.
We believe retail and institutional demand for tax-exempt issues is likely to
remain strong in the current interest rate environment. Given the strong
technical position of the municipal market, we believe intermediate tax-exempt
bond yields are at, or near, peak levels. As a result, we expect to shift our
focus from longer-dated bonds to the intermediate maturity range in the coming
months.
Robert D. Sneeden
Vice President and Portfolio Manager
Merrill Lynch Florida Municipal Bond Fund
Theodore R. Jaeckel Jr., CFA
Vice President and Portfolio Manager
Merrill Lynch New Jersey Municipal Bond Fund
William R. Bock
Vice President and Portfolio Manager
Merrill Lynch Pennsylvania Municipal Bond Fund
August 18, 2006
ANNUAL REPORTS JULY 31, 2006 9
Performance Data
About Fund Performance
Investors are able to purchase shares of the Funds through multiple pricing
alternatives:
o Class A Shares incur a maximum initial sales charge (front-end load) of 4%
and an account maintenance fee of 0.10% per year (but no distribution
fee).
o Class B Shares are subject to a maximum contingent deferred sales charge
of 4%, declining to 0% after six years. In addition, Class B Shares are
subject to a distribution fee of 0.25% per year and an account maintenance
fee of 0.25% per year. These shares automatically convert to Class A
Shares after approximately ten years. (There is no initial sales charge
for automatic share conversions.)
o Class C Shares are subject to a distribution fee of 0.35% per year and an
account maintenance fee of 0.25% per year. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within one
year of purchase.
o Effective December 28, 2005, Class I Shares are no longer subject to any
front-end sales charge. Class I Shares bear no ongoing distribution or
account maintenance fees and are available only to eligible investors. Had
the sales charge been included, each Fund's Class I Shares' performance
would have been lower.
None of the past results shown should be considered a representation of future
performance. Current performance may be lower or higher than the performance
data quoted. Refer to www.mlim.ml.com to obtain performance data current to the
most recent month-end. Performance results do not reflect the deduction of taxes
that a shareholder would pay on fund distributions or the redemption of fund
shares. Figures shown in each of the following tables assume reinvestment of all
dividends and capital gain distributions, if any, 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 Funds' Investment Adviser agreed to reimburse a portion of its fee. Without
such reimbursement, the Funds' performance may have been lower.
Recent Performance Results
6-Month 12-Month 10-Year Standardized
As of July 31, 2006 Total Return Total Return Total Return 30-Day Yield
=================================================================================================================================
ML Florida Municipal Bond Fund Class A Shares* +1.25% +2.49% +68.99% 3.91%
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ML Florida Municipal Bond Fund Class B Shares* +1.05 +2.08 +62.27 3.67
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ML Florida Municipal Bond Fund Class C Shares* +1.00 +1.98 +60.68 3.57
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ML Florida Municipal Bond Fund Class I Shares* +1.31 +2.60 +70.67 4.18
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ML New Jersey Municipal Bond Fund Class A Shares* +2.24 +3.55 +65.81 3.76
- ---------------------------------------------------------------------------------------------------------------------------------
ML New Jersey Municipal Bond Fund Class B Shares* +2.03 +3.03 +59.20 3.51
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ML New Jersey Municipal Bond Fund Class C Shares* +1.89 +2.83 +57.49 3.42
- ---------------------------------------------------------------------------------------------------------------------------------
ML New Jersey Municipal Bond Fund Class I Shares* +2.19 +3.46 +67.29 4.02
- ---------------------------------------------------------------------------------------------------------------------------------
ML Pennsylvania Municipal Bond Fund Class A Shares* +1.62 +2.49 +68.40 3.98
- ---------------------------------------------------------------------------------------------------------------------------------
ML Pennsylvania Municipal Bond Fund Class B Shares* +1.33 +2.07 +61.55 3.75
- ---------------------------------------------------------------------------------------------------------------------------------
ML Pennsylvania Municipal Bond Fund Class C Shares* +1.37 +2.06 +60.08 3.65
- ---------------------------------------------------------------------------------------------------------------------------------
ML Pennsylvania Municipal Bond Fund Class I Shares* +1.58 +2.59 +69.92 4.26
- ---------------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Municipal Bond Index** +1.20 +2.55 +76.07 --
- ---------------------------------------------------------------------------------------------------------------------------------
* Investment results shown do not reflect sales charges; results would be
lower if a sales charge was included. Cumulative 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.
** This unmanaged Index consists of revenue bonds, prerefunded bonds, general
obligation bonds and insured bonds, all of which mature within 30 years.
10 ANNUAL REPORTS JULY 31, 2006
Performance Data (continued) Merrill Lynch Florida Municipal Bond Fund
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Fund's Class A, Class
B, Class C & Class I Shares compared to growth of an investment in the Lehman
Brothers Municipal Bond Index. Values are from July 1996 to July 2006:
ML Florida Municipal ML Florida Municipal ML Florida Municipal ML Florida Municipal Lehman Brothers
Bond Fund+-- Bond Fund+-- Bond Fund+-- Bond Fund+-- Municipal Bond
Class A Shares* Class B Shares* Class C Shares* Class I Shares* Index++
7/96 $ 9,600 $10,000 $10,000 $10,000 $10,000
7/97 $10,549 $10,943 $10,933 $10,999 $11,025
7/98 $11,127 $11,496 $11,474 $11,613 $11,686
7/99 $11,292 $11,619 $11,585 $11,797 $12,022
7/00 $11,468 $11,754 $11,706 $11,994 $12,541
7/01 $12,582 $12,830 $12,780 $13,158 $13,804
7/02 $13,313 $13,520 $13,441 $13,936 $14,731
7/03 $13,800 $13,972 $13,876 $14,475 $15,262
7/04 $14,659 $14,767 $14,665 $15,376 $16,145
7/05 $15,829 $15,896 $15,757 $16,635 $17,169
7/06 $16,223 $16,227 $16,068 $17,067 $17,607
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
+ ML Florida Municipal Bond Fund invests primarily in long-term investment
grade obligations issued by or on behalf of the State of Florida, its
political subdivisions, agencies and instrumentalities and obligations of
other qualifying issuers.
++ This unmanaged Index consists of revenue bonds, prerefunded bonds, general
obligation bonds and insured bonds, all of which mature within 30 years.
Past performance is not indicative of future results.
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
One Year Ended 7/31/06 +2.49% -1.61%
- --------------------------------------------------------------------------------
Five Years Ended 7/31/06 +5.21 +4.36
- --------------------------------------------------------------------------------
Ten Years Ended 7/31/06 +5.39 +4.96
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Return Return
Without CDSC With CDSC+++
================================================================================
Class B Shares+
================================================================================
One Year Ended 7/31/06 +2.08% -1.84%
- --------------------------------------------------------------------------------
Five Years Ended 7/31/06 +4.81 +4.48
- --------------------------------------------------------------------------------
Ten Years Ended 7/31/06 +4.96 +4.96
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Return Return
Without CDSC With CDSC+++
================================================================================
Class C Shares++
================================================================================
One Year Ended 7/31/06 +1.98% +1.00%
- --------------------------------------------------------------------------------
Five Years Ended 7/31/06 +4.69 +4.69
- --------------------------------------------------------------------------------
Ten Years Ended 7/31/06 +4.86 +4.86
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class I Shares Return
================================================================================
One Year Ended 7/31/06 +2.60%
- --------------------------------------------------------------------------------
Five Years Ended 7/31/06 +5.34
- --------------------------------------------------------------------------------
Ten Years Ended 7/31/06 +5.49
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
+ Maximum contingent deferred sales charge is 4% and is reduced to 0% after
six years.
++ Maximum contingent deferred sales charge is 1% and is reduced to 0% after
one year.
+++ Assuming payment of applicable contingent deferred sales charge.
ANNUAL REPORTS JULY 31, 2006 11
Performance Data (continued) Merrill Lynch New Jersey Municipal Bond Fund
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Fund's Class A, Class
B, Class C & Class I Shares compared to growth of an investment in the Lehman
Brothers Municipal Bond Index. Values are from July 1996 to July 2006:
ML New Jersey Municipal ML New Jersey Municipal ML New Jersey Municipal ML New Jersey Municipal Lehman Brothers
Bond Fund+-- Bond Fund+-- Bond Fund+-- Bond Fund+-- Municipal Bond
Class A Shares* Class B Shares* Class C Shares* Class I Shares* Index++
7/96 $ 9,600 $10,000 $10,000 $10,000 $10,000
7/97 $10,535 $10,939 $10,918 $10,995 $11,025
7/98 $11,111 $11,481 $11,457 $11,597 $11,686
7/99 $11,258 $11,596 $11,561 $11,773 $12,022
7/00 $11,308 $11,588 $11,542 $11,825 $12,541
7/01 $12,471 $12,741 $12,666 $13,068 $13,804
7/02 $12,997 $13,225 $13,134 $13,633 $14,731
7/03 $13,356 $13,534 $13,428 $14,007 $15,262
7/04 $14,041 $14,170 $14,059 $14,755 $16,145
7/05 $15,373 $15,451 $15,315 $16,170 $17,169
7/06 $15,918 $15,920 $15,749 $16,729 $17,607
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
+ ML New Jersey Municipal Bond Fund invests primarily in long-term
investment grade obligations issued by or on behalf of the State of New
Jersey, its political subdivisions, agencies and instrumentalities and
obligations of other qualifying issuers.
++ This unmanaged Index consists of revenue bonds, prerefunded bonds, general
obligation bonds and insured bonds, all of which mature within 30 years.
Past performance is not indicative of future results.
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
One Year Ended 7/31/06 +3.55% -0.59%
- --------------------------------------------------------------------------------
Five Years Ended 7/31/06 +5.00 +4.15
- --------------------------------------------------------------------------------
Ten Years Ended 7/31/06 +5.19 +4.76
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Return Return
Without CDSC With CDSC+++
================================================================================
Class B Shares+
================================================================================
One Year Ended 7/31/06 +3.03% -0.94%
- --------------------------------------------------------------------------------
Five Years Ended 7/31/06 +4.56 +4.22
- --------------------------------------------------------------------------------
Ten Years Ended 7/31/06 +4.76 +4.76
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Return Return
Without CDSC With CDSC+++
================================================================================
Class C Shares++
================================================================================
One Year Ended 7/31/06 +2.83% +1.84%
- --------------------------------------------------------------------------------
Five Years Ended 7/31/06 +4.45 +4.45
- --------------------------------------------------------------------------------
Ten Years Ended 7/31/06 +4.65 +4.65
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class I Shares Return
================================================================================
One Year Ended 7/31/06 +3.46%
- --------------------------------------------------------------------------------
Five Years Ended 7/31/06 +5.06
- --------------------------------------------------------------------------------
Ten Years Ended 7/31/06 +5.28
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
+ Maximum contingent deferred sales charge is 4% and is reduced to 0% after
six years.
++ Maximum contingent deferred sales charge is 1% and is reduced to 0% after
one year.
+++ Assuming payment of applicable contingent deferred sales charge.
12 ANNUAL REPORTS JULY 31, 2006
Performance Data (concluded) Merrill Lynch Pennsylvania Municipal Bond Fund
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Fund's Class A, Class
B, Class C & Class I Shares compared to growth of an investment in the Lehman
Brothers Municipal Bond Index. Values are from July 1996 to July 2006:
ML Pennsylvania Municipal ML Pennsylvania Municipal ML Pennsylvania Municipal ML Pennsylvania Municipal Lehman Brothers
Bond Fund+-- Bond Fund+-- Bond Fund+-- Bond Fund+-- Municipal Bond
Class A Shares* Class B Shares* Class C Shares* Class I Shares* Index++
7/96 $ 9,600 $10,000 $10,000 $10,000 $10,000
7/97 $10,523 $10,917 $10,906 $10,973 $11,025
7/98 $11,152 $11,523 $11,500 $11,630 $11,686
7/99 $11,298 $11,615 $11,580 $11,793 $12,022
7/00 $11,553 $11,840 $11,792 $12,083 $12,541
7/01 $12,652 $12,914 $12,850 $13,246 $13,804
7/02 $13,474 $13,698 $13,616 $14,121 $14,731
7/03 $13,972 $14,133 $14,034 $14,642 $15,262
7/04 $14,720 $14,843 $14,724 $15,455 $16,145
7/05 $15,773 $15,827 $15,685 $16,563 $17,169
7/06 $16,166 $16,155 $16,008 $16,992 $17,607
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
+ ML Pennsylvania Municipal Bond Fund invests primarily in long-term
investment grade obligations issued by or on behalf of the Commonwealth of
Pennsylvania, its political subdivisions, agencies and instrumentalities
and obligations of other qualifying issuers.
++ This unmanaged Index consists of revenue bonds, prerefunded bonds, general
obligation bonds and insured bonds, all of which mature within 30 years.
Past performance is not indicative of future results.
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
One Year Ended 7/31/06 +2.49% -1.61%
- --------------------------------------------------------------------------------
Five Years Ended 7/31/06 +5.02 +4.17
- --------------------------------------------------------------------------------
Ten Years Ended 7/31/06 +5.35 +4.92
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Return Return
Without CDSC With CDSC+++
================================================================================
Class B Shares+
================================================================================
One Year Ended 7/31/06 +2.07% -1.85%
- --------------------------------------------------------------------------------
Five Years Ended 7/31/06 +4.58 +4.24
- --------------------------------------------------------------------------------
Ten Years Ended 7/31/06 +4.91 +4.91
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Return Return
Without CDSC With CDSC+++
================================================================================
Class C Shares++
================================================================================
One Year Ended 7/31/06 +2.06% +1.08%
- --------------------------------------------------------------------------------
Five Years Ended 7/31/06 +4.49 +4.49
- --------------------------------------------------------------------------------
Ten Years Ended 7/31/06 +4.82 +4.82
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class I Shares Return
================================================================================
One Year Ended 7/31/06 +2.59%
- --------------------------------------------------------------------------------
Five Years Ended 7/31/06 +5.11
- --------------------------------------------------------------------------------
Ten Years Ended 7/31/06 +5.44
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
+ Maximum contingent deferred sales charge is 4% and is reduced to 0% after
six years.
++ Maximum contingent deferred sales charge is 1% and is reduced to 0% after
one year.
+++ Assuming payment of applicable contingent deferred sales charge.
ANNUAL REPORTS JULY 31, 2006 13
Disclosure of Expenses
Shareholders of each Fund may incur the following charges: (a) expenses related
to transactions, including sales charges, redemption fees and exchange fees; and
(b) operating expenses including advisory fees, distribution fees including
12b-1 fees, and other Fund expenses. The following example (which is based on a
hypothetical investment of $1,000 invested on February 1, 2006 and held through
July 31, 2006) is intended to assist shareholders both in calculating expenses
based on an investment in each Fund and in comparing these expenses with similar
costs of investing in other mutual funds.
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during the
period covered by this report, shareholders can divide their account value by
$1,000 and then multiply the result by the number in the first line under the
heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on each Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in these Funds and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders' ongoing
costs only and do not reflect any transactional expenses, such as sales charges,
redemption fees or exchange fees. Therefore, the second table is useful in
comparing ongoing expenses only, and will not help shareholders determine the
relative total expenses of owning different funds. If these transactional
expenses were included, shareholder expenses would have been higher.
Merrill Lynch Florida Municipal Bond Fund
Expenses Paid
Beginning Ending During the Period*
Account Value Account Value February 1, 2006
February 1, 2006 July 31, 2006 to July 31, 2006
=======================================================================================================================
Actual
=======================================================================================================================
Class A $ 1,000 $1,012.50 $ 4.39
- -----------------------------------------------------------------------------------------------------------------------
Class B $ 1,000 $1,010.50 $ 6.43
- -----------------------------------------------------------------------------------------------------------------------
Class C $ 1,000 $1,010.00 $ 6.93
- -----------------------------------------------------------------------------------------------------------------------
Class I $ 1,000 $1,013.10 $ 3.89
=======================================================================================================================
Hypothetical (5% annual return before expenses)**
=======================================================================================================================
Class A $ 1,000 $1,020.44 $ 4.41
- -----------------------------------------------------------------------------------------------------------------------
Class B $ 1,000 $1,018.40 $ 6.46
- -----------------------------------------------------------------------------------------------------------------------
Class C $ 1,000 $1,017.91 $ 6.95
- -----------------------------------------------------------------------------------------------------------------------
Class I $ 1,000 $1,020.93 $ 3.91
- -----------------------------------------------------------------------------------------------------------------------
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (.88% for Class A, 1.29% for Class B, 1.39% for Class
C and .78% for Class I), multiplied by the average account value over the
period, multiplied by 181/365 (to reflect the one-half year period shown).
** Hypothetical 5% annual return before expenses is calculated by pro-rating
the number of days in the most recent fiscal half year divided by 365.
14 ANNUAL REPORTS JULY 31, 2006
Disclosure of Expenses (concluded)
Merrill Lynch New Jersey Municipal Bond Fund
Expenses Paid
Beginning Ending During the Period*
Account Value Account Value February 1, 2006
February 1, 2006 July 31, 2006 to July 31, 2006
=======================================================================================================================
Actual
=======================================================================================================================
Class A $ 1,000 $1,022.40 $ 4.46
- -----------------------------------------------------------------------------------------------------------------------
Class B $ 1,000 $1,020.30 $ 6.51
- -----------------------------------------------------------------------------------------------------------------------
Class C $ 1,000 $1,018.90 $ 7.01
- -----------------------------------------------------------------------------------------------------------------------
Class I $ 1,000 $1,021.90 $ 3.96
=======================================================================================================================
Hypothetical (5% annual return before expenses)**
=======================================================================================================================
Class A $ 1,000 $1,020.39 $ 4.46
- -----------------------------------------------------------------------------------------------------------------------
Class B $ 1,000 $1,018.35 $ 6.51
- -----------------------------------------------------------------------------------------------------------------------
Class C $ 1,000 $1,017.86 $ 7.00
- -----------------------------------------------------------------------------------------------------------------------
Class I $ 1,000 $1,020.88 $ 3.96
- -----------------------------------------------------------------------------------------------------------------------
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (.89% for Class A, 1.30% for Class B, 1.40% for Class
C and .79% for Class I), multiplied by the average account value over the
period, multiplied by 181/365 (to reflect the one-half year period shown).
** Hypothetical 5% annual return before expenses is calculated by pro-rating
the number of days in the most recent fiscal half year divided by 365.
Merrill Lynch Pennsylvania Municipal Bond Fund
Expenses Paid
Beginning Ending During the Period*
Account Value Account Value February 1, 2006
February 1, 2006 July 31, 2006 to July 31, 2006
=======================================================================================================================
Actual
=======================================================================================================================
Class A $ 1,000 $1,016.20 $ 4.80
- -----------------------------------------------------------------------------------------------------------------------
Class B $ 1,000 $1,013.30 $ 6.84
- -----------------------------------------------------------------------------------------------------------------------
Class C $ 1,000 $1,013.70 $ 7.34
- -----------------------------------------------------------------------------------------------------------------------
Class I $ 1,000 $1,015.80 $ 4.30
=======================================================================================================================
Hypothetical (5% annual return before expenses)**
=======================================================================================================================
Class A $ 1,000 $1,020.04 $ 4.81
- -----------------------------------------------------------------------------------------------------------------------
Class B $ 1,000 $1,018.01 $ 6.85
- -----------------------------------------------------------------------------------------------------------------------
Class C $ 1,000 $1,017.51 $ 7.35
- -----------------------------------------------------------------------------------------------------------------------
Class I $ 1,000 $1,020.54 $ 4.31
- -----------------------------------------------------------------------------------------------------------------------
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (.96% for Class A, 1.37% for Class B, 1.47% for Class
C and .86% for Class I), multiplied by the average account value over the
period, multiplied by 181/365 (to reflect the one-half year period shown).
** Hypothetical 5% annual return before expenses is calculated by pro-rating
the number of days in the most recent fiscal half year divided by 365.
ANNUAL REPORTS JULY 31, 2006 15
Portfolio Information as of July 31, 2006
Merrill Lynch Florida Municipal Bond Fund
Percent of Total
Distribution by Market Sector Investments
- --------------------------------------------------------------------------------
Other Revenue Bonds ..................................... 75.1%
General Obligation Bonds ................................ 7.7
Prerefunded Bonds* ...................................... 14.8
Other** ................................................. 2.4
- --------------------------------------------------------------------------------
* Backed by an escrow fund.
** Includes portfolio holdings in mutual funds, variable rate demand notes
and short-term investments.
Quality Ratings by Percent of Total
S&P/Moody's Investments
- --------------------------------------------------------------------------------
AAA/Aaa ................................................. 52.0%
AA/Aa ................................................... 4.3
A/A ..................................................... 9.4
BBB/Baa ................................................. 9.5
NR (Not Rated) .......................................... 20.6
Other* .................................................. 4.2
- --------------------------------------------------------------------------------
* Includes portfolio holdings in mutual funds, variable rate demand notes
and short-term investments.
Merrill Lynch New Jersey Municipal Bond Fund
Percent of Total
Distribution by Market Sector Investments
- --------------------------------------------------------------------------------
Other Revenue Bonds ..................................... 78.2%
General Obligation Bonds ................................ 16.5
Prerefunded Bonds* ...................................... 3.3
Other** ................................................. 2.0
- --------------------------------------------------------------------------------
* Backed by an escrow fund.
** Includes portfolio holdings in variable rate demand notes and short-term
investments.
Quality Ratings by Percent of Total
S&P/Moody's Investments
- --------------------------------------------------------------------------------
AAA/Aaa ................................................. 51.6%
AA/Aa ................................................... 9.0
A/A ..................................................... 9.8
BBB/Baa ................................................. 13.4
BB/Ba ................................................... 2.8
B/B ..................................................... 3.5
CCC/Caa ................................................. 2.1
NR (Not Rated) .......................................... 5.8
Other* .................................................. 2.0
- --------------------------------------------------------------------------------
* Includes portfolio holdings in variable rate demand notes and short-term
investments.
Merrill Lynch Pennsylvania Municipal Bond Fund
Percent of Total
Distribution by Market Sector Investments
- --------------------------------------------------------------------------------
Other Revenue Bonds ..................................... 83.4%
General Obligation Bonds ................................ 14.9
Other* .................................................. 1.7
- --------------------------------------------------------------------------------
* Includes portfolio holdings in short-term investments.
Quality Ratings by Percent of Total
S&P/Moody's Investments
- --------------------------------------------------------------------------------
AAA/Aaa ................................................. 33.5%
AA/Aa ................................................... 14.8
A/A ..................................................... 4.2
BBB/Baa ................................................. 31.7
BB/Ba ................................................... 3.6
CCC/Caa ................................................. 1.0
NR (Not Rated) .......................................... 9.5
Other* .................................................. 1.7
- --------------------------------------------------------------------------------
* Includes portfolio holdings in short-term investments.
16 ANNUAL REPORTS JULY 31, 2006
Schedule of Investments
Merrill Lynch Florida Municipal Bond Fund (in Thousands)
Face
Amount Municipal Bonds Value
===============================================================================
Florida -- 88.6%
- -------------------------------------------------------------------------------
$1,095 Altamonte Springs, Florida, Health Facilities Authority,
Hospital Revenue Bonds (Adventist Health
Systems -- Sunbelt), 7% due 10/01/2014 (e) $ 1,322
- -------------------------------------------------------------------------------
1,230 Ballantrae, Florida, Community Development District,
Capital Improvement Revenue Bonds,
6% due 5/01/2035 1,281
- -------------------------------------------------------------------------------
1,130 Broward County, Florida, Educational Facilities
Authority Revenue Bonds (Nova Southeastern
University), 5% due 4/01/2031 (c) 1,161
- -------------------------------------------------------------------------------
1,000 Cape Coral, Florida, Special Obligation Revenue Bonds,
5% due 10/01/2033 (j) 1,032
- -------------------------------------------------------------------------------
550 Capital Trust Agency, Florida, Air Cargo Revenue Bonds,
AMT, 6.25% due 1/01/2019 582
- -------------------------------------------------------------------------------
Citrus County, Florida, Hospital Board Revenue
Refunding Bonds (Citrus Memorial Hospital):
930 6.25% due 8/15/2023 1,002
1,500 6.375% due 8/15/2032 1,618
- -------------------------------------------------------------------------------
1,000 Cypress Lakes, Florida, Community Development
District, Special Assessment Bonds, Series A,
6% due 5/01/2034 1,044
- -------------------------------------------------------------------------------
1,500 Fiddlers Creek, Florida, Community Development
District Number 2, Special Assessment Revenue Bonds,
Series A, 6.375% due 5/01/2035 1,588
- -------------------------------------------------------------------------------
1,165 Florida HFA, Homeowner Mortgage Revenue Bonds,
AMT, Series 3, 6.35% due 7/01/2028 (g)(j) 1,194
- -------------------------------------------------------------------------------
525 Florida Housing Finance Corporation, Homeowner
Mortgage Revenue Refunding Bonds, AMT, Series 4,
6.25% due 7/01/2022 (h) 534
- -------------------------------------------------------------------------------
5,000 Florida State Board of Education, Lottery Revenue
Bonds, DRIVERS, Series 222, 8.534%
due 7/01/2017 (f)(m) 5,970
- -------------------------------------------------------------------------------
2,500 Florida State Turnpike Authority, Turnpike Revenue
Bonds, DRIVERS, Series 218, 8.523%
due 7/01/2029 (f)(m) 2,985
- -------------------------------------------------------------------------------
1,000 Halifax Hospital Medical Center, Florida, Hospital
Revenue Refunding Bonds, Series A, 5%
due 6/01/2038 995
- -------------------------------------------------------------------------------
965 Harbor Bay, Florida, Community Development District,
Capital Improvement Special Assessment Revenue
Bonds, Series A, 7% due 5/01/2033 1,040
- -------------------------------------------------------------------------------
135 Heritage Isles Community Development District, Florida,
Special Assessment Revenue Refunding Bonds,
5.90% due 11/01/2006 136
- -------------------------------------------------------------------------------
2,000 Hernando County, Florida, School Board, COP,
5% due 7/01/2035 (j) 2,057
- -------------------------------------------------------------------------------
Highlands County, Florida, Health Facilities Authority,
Hospital Revenue Bonds (Adventist Health System):
3,500 Series A, 6% due 11/15/2011 (k) 3,876
1,000 Series C, 5.25% due 11/15/2036 1,033
- -------------------------------------------------------------------------------
Hillsborough County, Florida, IDA, Exempt Facilities
Revenue Bonds (National Gypsum Company), AMT:
1,000 Series A, 7.125% due 4/01/2030 1,099
1,750 Series B, 7.125% due 4/01/2030 1,923
- -------------------------------------------------------------------------------
1,000 Hillsborough County, Florida, School Board, COP,
Refunding, Series A, 5% due 7/01/2026 (j) 1,030
- -------------------------------------------------------------------------------
Jacksonville, Florida, Economic Development
Commission, Health Care Facilities Revenue Bonds
(Mayo Clinic--Jacksonville):
1,000 Series A, 5.50% due 11/15/2036 1,058
1,000 Series A, 5.50% due 11/15/2036 (j) 1,066
2,000 Series B, 5.50% due 11/15/2036 2,115
410 Series B, 5.50% due 11/15/2036 (j) 437
- -------------------------------------------------------------------------------
2,050 Jacksonville, Florida, Economic Development
Commission, IDR (Metropolitan Parking Solutions
Project), AMT, 5.875% due 6/01/2031 (a) 2,209
- -------------------------------------------------------------------------------
1,200 Jacksonville, Florida, Guaranteed Entitlement Revenue
Refunding and Improvement Bonds, 5.25%
due 10/01/2032 (f) 1,258
- -------------------------------------------------------------------------------
1,520 Jacksonville, Florida, Sales Tax Revenue Bonds,
5% due 10/01/2027 (j) 1,564
- -------------------------------------------------------------------------------
1,100 Lee County, Florida, School Board, COP, Series A,
5% due 8/01/2024 (h) 1,146
- -------------------------------------------------------------------------------
1,000 Marco Island, Florida, Utility System Revenue Bonds,
5% due 10/01/2033 (j) 1,028
- -------------------------------------------------------------------------------
2,320 Martin County, Florida, Health Facilities Authority,
Hospital Revenue Bonds (Martin Memorial Medical
Center), Series A, 5.875% due 11/15/2032 2,474
- -------------------------------------------------------------------------------
4,435 Miami-Dade County, Florida, Aviation Revenue Bonds,
AMT, Series A, 5% due 10/01/2033 (h) 4,486
- -------------------------------------------------------------------------------
Miami-Dade County, Florida, Expressway Authority,
Toll System Revenue Bonds, Series B (f):
2,495 5.25% due 7/01/2026 2,658
3,450 5% due 7/01/2033 3,550
- -------------------------------------------------------------------------------
1,250 Miami-Dade County, Florida, Solid Waste System
Revenue Bonds, 5.25% due 10/01/2030 (j) 1,325
- -------------------------------------------------------------------------------
Portfolio Abbreviations
To simplify the listings of portfolio holdings in the Schedules of Investments,
we have abbreviated the names of many of the securities according to the list at
right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
DATES Daily Adjustable Tax-Exempt Securities
DRIVERS Derivative Inverse Tax-Exempt Receipts
EDA Economic Development Authority
EDR Economic Development Revenue Bonds
GO General Obligation Bonds
HFA Housing Finance Agency
IDA Industrial Development Authority
IDR Industrial Development Revenue Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
RITR Residual Interest Trust Receipts
S/F Single-Family
VRDN Variable Rate Demand Notes
ANNUAL REPORTS JULY 31, 2006 17
Schedule of Investments (continued)
Merrill Lynch Florida Municipal Bond Fund (in Thousands)
Face
Amount Municipal Bonds Value
===============================================================================
Florida (continued)
- -------------------------------------------------------------------------------
$4,225 Miami-Dade County, Florida, Subordinate Special
Obligation Revenue Bonds, Series A, 5.20%
due 10/01/2032 (j)(o) $ 1,078
- -------------------------------------------------------------------------------
1,000 Middle Village Community Development District,
Florida, Special Assessment Bonds, Series A, 6%
due 5/01/2035 1,041
- -------------------------------------------------------------------------------
2,000 Midtown Miami, Florida, Community Development
District, Special Assessment Revenue Bonds, Series A,
6.25% due 5/01/2037 2,168
- -------------------------------------------------------------------------------
990 Oak Creek, Florida, Community Development District,
Special Assessment Bonds, 5.80% due 5/01/2035 1,025
- -------------------------------------------------------------------------------
990 Old Palm Community Development District, Florida,
Special Assessment Bonds (Palm Beach Gardens),
Series A, 5.90% due 5/01/2035 1,032
- -------------------------------------------------------------------------------
Orange County, Florida, Health Facilities Authority,
Hospital Revenue Bonds:
500 (Adventist Health System), 6.25% due 11/15/2024 547
2,705 (Orlando Regional Healthcare), 6%
due 12/01/2012 (k) 3,008
- -------------------------------------------------------------------------------
1,500 Orlando and Orange County, Florida, Expressway
Authority Revenue Bonds, Series B, 5%
due 7/01/2035 (b) 1,537
- -------------------------------------------------------------------------------
1,000 Orlando, Florida, Greater Orlando Aviation Authority,
Airport Facilities Revenue Bonds (JetBlue Airways Corp.),
AMT, 6.375% due 11/15/2026 1,039
- -------------------------------------------------------------------------------
Orlando, Florida, Urban Community Development
District, Capital Improvement Special Assessment Bonds:
1,000 6.25% due 5/01/2034 1,066
960 Series A, 6.95% due 5/01/2033 1,034
- -------------------------------------------------------------------------------
1,265 Osceola County, Florida, Infrastructure Sales Surplus
Tax Revenue Bonds, 5.25% due 10/01/2025 (b) 1,326
- -------------------------------------------------------------------------------
2,000 Osceola County, Florida, School Board, COP, Series A,
5.25% due 6/01/2027 (b) 2,099
- -------------------------------------------------------------------------------
925 Osceola County, Florida, Tourist Development Tax
Revenue Bonds, Series A, 5.50% due 10/01/2027 (f) 987
- -------------------------------------------------------------------------------
1,000 Palm Beach County, Florida, School Board, COP,
Series A, 5% due 8/01/2031 (h) 1,033
- -------------------------------------------------------------------------------
1,000 Palm Coast, Florida, Utility System Revenue Bonds,
5% due 10/01/2027 (j) 1,028
- -------------------------------------------------------------------------------
1,000 Palm Coast Park Community Development District,
Florida, Special Assessment Revenue Bonds,
5.70% due 5/01/2037 1,005
- -------------------------------------------------------------------------------
Park Place Community Development District, Florida,
Special Assessment Revenue Bonds:
500 6.75% due 5/01/2032 530
985 6.375% due 5/01/2034 1,032
- -------------------------------------------------------------------------------
2,080 Pasco County, Florida, Health Facilities Authority,
Gross Revenue Bonds (Adventist Health
System--Sunbelt), 7% due 10/01/2014 (e) 2,489
- -------------------------------------------------------------------------------
2,000 Pinellas County, Florida, Health Facilities Authority
Revenue Bonds (BayCare Health System Inc.),
5.75% due 5/15/2013 (k) 2,215
- -------------------------------------------------------------------------------
500 Pinellas County, Florida, Health Facilities Authority,
Revenue Refunding Bonds (Pooled Hospital Loan
Program), DATES, 3.69% due 12/01/2015 (b)(l) 500
- -------------------------------------------------------------------------------
Polk County, Florida, Public Facilities Revenue Bonds (j):
1,000 5% due 12/01/2025 1,039
1,300 5% due 12/01/2033 1,341
- -------------------------------------------------------------------------------
185 Reunion East Community Development District, Florida,
Special Assessment, Series B, 5.90% due 11/01/2007 185
- -------------------------------------------------------------------------------
1,000 Saint Johns County, Florida, Sales Tax Revenue Bonds,
Series A, 5.25% due 10/01/2028 (b) 1,056
- -------------------------------------------------------------------------------
1,080 Sandy Creek Community Development District,
Florida, Special Assessment Bonds, Series B,
5% due 11/01/2010 1,084
- -------------------------------------------------------------------------------
1,000 Santa Rosa County, Florida, School Board, COP,
DRIVERS, Series 1293Z, 6.541% due 2/01/2014 (f)(m) 1,115
- -------------------------------------------------------------------------------
1,800 Sarasota County, Florida, Public Hospital Board,
Hospital Revenue Bonds (Sarasota Memorial Hospital),
VRDN, Series A, 3.74% due 7/01/2037 (b)(l) 1,800
- -------------------------------------------------------------------------------
2,320 South Broward, Florida, Hospital District Revenue
Bonds, DRIVERS, Series 337, 7.29% due 5/01/2032 (j)(m) 2,665
- -------------------------------------------------------------------------------
985 South Kendall, Florida, Community Development
District, Special Assessment Bonds, Series A, 5.90%
due 5/01/2035 1,026
- -------------------------------------------------------------------------------
South Lake County, Florida, Hospital District Revenue
Bonds (South Lake Hospital, Inc.):
1,000 5.80% due 10/01/2034 1,036
995 6.375% due 10/01/2034 1,082
- -------------------------------------------------------------------------------
645 Sterling Hill, Florida, Community Development District,
Capital Improvement Revenue Refunding Bonds,
Series B, 5.50% due 11/01/2010 648
- -------------------------------------------------------------------------------
145 Stoneybrook West, Florida, Community Development
District, Special Assessment Revenue Bonds, Series B,
6.45% due 5/01/2010 145
- -------------------------------------------------------------------------------
2,860 University of Central Florida (UCF) Athletics Association,
Inc., COP, Series A, 5.25% due 10/01/2034 (f) 2,988
- -------------------------------------------------------------------------------
1,000 Village Center Community Development District,
Florida, Utility Revenue Bonds, 5.125%
due 10/01/2028 (j) 1,037
- -------------------------------------------------------------------------------
1,445 Vista Lakes Community Development District, Florida,
Capital Improvement Revenue Bonds, Series A,
6.75% due 5/01/2034 1,559
- -------------------------------------------------------------------------------
1,000 Volusia County, Florida, IDA, Student Housing Revenue
Bonds (Stetson University Project), Series A,
5% due 6/01/2035 (d) 1,031
- -------------------------------------------------------------------------------
1,000 West Villages Improvement District, Florida, Special
Assessment Revenue Refunding Bonds (Unit of
Development Number 2), 5.35% due 5/01/2015 1,015
- -------------------------------------------------------------------------------
18 ANNUAL REPORTS JULY 31, 2006
Schedule of Investments (concluded)
Merrill Lynch Florida Municipal Bond Fund (in Thousands)
Face
Amount Municipal Bonds Value
===============================================================================
New Jersey--6.1%
- -------------------------------------------------------------------------------
New Jersey EDA, Cigarette Tax Revenue Bonds:
$1,500 5.50% due 6/15/2024 $ 1,557
4,650 5.75% due 6/15/2029 (c) 5,038
1,020 5.75% due 6/15/2034 1,073
- -------------------------------------------------------------------------------
===============================================================================
Puerto Rico--2.0%
- -------------------------------------------------------------------------------
1,365 Puerto Rico Industrial, Tourist, Educational, Medical
and Environmental Control Facilities Revenue Bonds
(Cogeneration Facility--AES Puerto Rico Project), AMT,
6.625% due 6/01/2026 1,484
- -------------------------------------------------------------------------------
1,000 Puerto Rico Public Buildings Authority, Government
Facilities Revenue Refunding Bonds, Series I,
5% due 7/01/2036 1,008
- -------------------------------------------------------------------------------
Total Municipal Bonds
(Cost--$117,117)--96.7% 121,707
- -------------------------------------------------------------------------------
Shares
Held Mutual Funds
===============================================================================
211 BlackRock Florida Insured Municipal 2008 Term Trust 2,960
- -------------------------------------------------------------------------------
Total Mutual Funds
(Cost--$3,495)--2.3% 2,960
===============================================================================
Short-Term Securities
===============================================================================
5 CMA Florida Municipal Money Fund,
2.92% (i)(n) 5
- -------------------------------------------------------------------------------
Total Short-Term Securities
(Cost--$5)--0.0% 5
- -------------------------------------------------------------------------------
Total Investments (Cost--$120,617*)--99.0% 124,672
Other Assets Less Liabilities--1.0% 1,227
--------
Net Assets--100.0% $125,899
========
- -------------------------------------------------------------------------------
* The cost and unrealized appreciation (depreciation) of investments as of
July 31, 2006, as computed for federal income tax purposes, were as
follows:
Aggregate cost ................................................ $120,618
========
Gross unrealized appreciation ................................. $ 4,668
Gross unrealized depreciation ................................. (614)
--------
Net unrealized appreciation ................................... $ 4,054
========
(a) ACA Insured.
(b) AMBAC Insured.
(c) Assured Guaranty Insured.
(d) CIFG Insured.
(e) Escrowed to maturity.
(f) FGIC Insured.
(g) FHA Insured.
(h) FSA Insured.
(i) Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
-------------------------------------------------------------------------
Net Dividend
Affiliate Activity Income
-------------------------------------------------------------------------
CMA Florida Municipal Money Fund 5 $ 5
Merrill Lynch Institutional Tax-Exempt Fund (13) $ --+
-------------------------------------------------------------------------
+ Amount is less than $1,000.
(j) MBIA Insured.
(k) Prerefunded.
(l) Security may have a maturity of more than one year at time of issuance,
but has variable rate and demand features that qualify it as a short-term
security. The rate disclosed is that currently in effect. This rate
changes periodically based upon prevailing market rates.
(m) The rate disclosed is that currently in effect. This rate changes
periodically and inversely based upon prevailing market rates.
(n) Represents the current yield as of July 31, 2006.
(o) Represents a zero coupon bond; the interest rate shown reflects the
effective yield at the time of purchase.
See Notes to Financial Statements.
ANNUAL REPORTS JULY 31, 2006 19
Schedule of Investments
Merrill Lynch New Jersey Municipal Bond Fund (in Thousads)
Face
Amount Municipal Bonds Value
===============================================================================
New Jersey--90.0%
- -------------------------------------------------------------------------------
$2,000 Bergen County, New Jersey, Improvement Authority,
School District, GO (Wyckoff Township Board of
Education Project), 5% due 4/01/2032 $ 2,072
- -------------------------------------------------------------------------------
Camden County, New Jersey, Pollution Control
Financing Authority, Solid Waste Resource Recovery,
Revenue Refunding Bonds, AMT:
340 Series A, 7.50% due 12/01/2010 341
190 Series B, 7.50% due 12/01/2009 193
- -------------------------------------------------------------------------------
1,000 Cape May Point, New Jersey, GO, 5.70% due 3/15/2013 1,034
- -------------------------------------------------------------------------------
2,450 Delaware River Joint Toll Bridge Commission of New
Jersey and Pennsylvania, Bridge Revenue Refunding
Bonds, 5% due 7/01/2024 2,519
- -------------------------------------------------------------------------------
350 Delaware River Port Authority of Pennsylvania and New
Jersey, Revenue Refunding Bonds (Port District Project),
Series A, 5.20% due 1/01/2027 (d) 364
- -------------------------------------------------------------------------------
4,135 Garden State Preservation Trust of New Jersey, Capital
Appreciation Revenue Bonds, Series B, 5.24%
due 11/01/2027 (d)(m) 1,509
- -------------------------------------------------------------------------------
Garden State Preservation Trust of New Jersey, Open
Space and Farmland Preservation Revenue Bonds,
Series A (d):
1,640 5.80% due 11/01/2022 1,851
2,080 5.75% due 11/01/2028 2,446
- -------------------------------------------------------------------------------
250 Gloucester County, New Jersey, Improvement Authority,
Lease Revenue Bonds, Series A, 5% due 7/15/2023 (e) 259
- -------------------------------------------------------------------------------
200 Middlesex County, New Jersey, COP, Refunding, 5%
due 8/01/2022 (e) 206
- -------------------------------------------------------------------------------
1,705 Middlesex County, New Jersey, Improvement Authority,
County-Guaranteed Revenue Bonds (Golf Course
Projects), 5.25% due 6/01/2026 1,807
- -------------------------------------------------------------------------------
1,000 Middlesex County, New Jersey, Pollution Control
Financing Authority, Revenue Refunding Bonds
(Amerada Hess Corporation), 6.05% due 9/15/2034 1,067
- -------------------------------------------------------------------------------
New Jersey EDA, Cigarette Tax Revenue Bonds:
520 5.625% due 6/15/2019 543
790 5.75% due 6/15/2029 837
125 5.50% due 6/15/2031 130
230 5.75% due 6/15/2034 242
- -------------------------------------------------------------------------------
New Jersey EDA, EDR (Masonic Charity Foundation of
New Jersey):
875 5.25% due 6/01/2024 915
500 5.25% due 6/01/2032 521
- -------------------------------------------------------------------------------
150 New Jersey EDA, EDR, Refunding (Burlington Coat Factory),
6.125% due 9/01/2010 150
- -------------------------------------------------------------------------------
New Jersey EDA, First Mortgage Revenue Bonds:
1,000 (Lions Gate Project), Series A, 5.875%
due 1/01/2037 1,019
1,330 (The Presbyterian Home), Series A, 6.375%
due 11/01/2031 1,399
1,630 (The Presbyterian Home), Series B, 5.75%
due 11/01/2031 1,637
- -------------------------------------------------------------------------------
New Jersey EDA, First Mortgage Revenue Refunding
Bonds, Series A:
585 (Fellowship Village), 5.30% due 1/01/2010 599
1,500 (The Winchester Gardens at Ward Homestead
Project), 5.80% due 11/01/2031 1,590
- -------------------------------------------------------------------------------
1,250 New Jersey EDA, IDR, Refunding (Newark Airport
Marriott Hotel), 7% due 10/01/2014 1,293
- -------------------------------------------------------------------------------
New Jersey EDA, Motor Vehicle Surcharge Revenue
Bonds, Series A (e):
1,675 4.82% due 7/01/2021 (m) 841
2,100 5% due 7/01/2029 2,165
880 5% due 7/01/2034 906
- -------------------------------------------------------------------------------
100 New Jersey EDA, PCR (Public Service Electric & Gas Co.),
AMT, Series A, 6.40% due 5/01/2032 (e) 101
- -------------------------------------------------------------------------------
425 New Jersey EDA, Retirement Community Revenue
Bonds (Cedar Crest Village, Inc. Facility), Series A,
7.25% due 11/15/2031 460
- -------------------------------------------------------------------------------
1,075 New Jersey EDA, Revenue Bonds (American Airlines Inc.
Project), AMT, 7.10% due 11/01/2031 1,075
- -------------------------------------------------------------------------------
50 New Jersey EDA, Revenue Refunding Bonds (Health
Village 96 Project), 6% due 5/01/2016 51
- -------------------------------------------------------------------------------
New Jersey EDA, School Facilities Construction
Revenue Bonds:
1,700 Series L, 5% due 3/01/2030 (d) 1,753
1,590 Series O, 5.25% due 3/01/2023 1,683
- -------------------------------------------------------------------------------
1,000 New Jersey EDA, Solid Waste Disposal Facilities Revenue
Bonds (Waste Management, Inc.), AMT, Series A,
5.30% due 6/01/2015 1,043
- -------------------------------------------------------------------------------
3,000 New Jersey EDA, Special Facility Revenue Bonds
(Continental Airlines, Inc. Project), AMT, 6.25%
due 9/15/2019 3,068
- -------------------------------------------------------------------------------
2,000 New Jersey EDA, State Contract Revenue Refunding
Bonds (Economic Fund), Series A, 5.25%
due 3/15/2021 (e)(m) 1,018
- -------------------------------------------------------------------------------
3,500 New Jersey EDA, State Lease Revenue Bonds (State
Office Buildings Projects), 6.25% due 6/15/2010 (a)(f) 3,807
- -------------------------------------------------------------------------------
100 New Jersey EDA, Water Facilities Revenue Bonds
(New Jersey--American Water Company, Inc. Project),
Series A, 6.875% due 11/01/2034 (b) 101
- -------------------------------------------------------------------------------
20 ANNUAL REPORTS JULY 31, 2006
Schedule of Investments (continued)
Merrill Lynch New Jersey Municipal Bond Fund (in Thousands)
Face
Amount Municipal Bonds Value
===============================================================================
New Jersey (continued)
- -------------------------------------------------------------------------------
$ 100 New Jersey EDA, Water Facilities Revenue Refunding
Bonds (United Water of New Jersey Inc. Project), VRDN,
Series A, 3.60% due 11/01/2026 (a)(k) $ 100
- -------------------------------------------------------------------------------
New Jersey Health Care Facilities Financing Authority
Revenue Bonds:
500 (Avalon at Hillsborough), AMT, Series A, 6.625%
due 7/01/2035 503
460 (Children's Specialized Hospital), Series A, 5.50%
due 7/01/2036 475
750 (Hunterdon Medical Center), Series A, 5.25%
due 7/01/2025 777
1,100 (Hunterdon Medical Center), Series A, 5.125%
due 7/01/2035 1,110
945 (Pascack Valley Hospital Association), 6%
due 7/01/2013 956
1,040 (RWJ Healthcare Corporation), Series B, 5%
due 7/01/2035 (i) 1,057
2,650 (Robert Wood Johnson University Hospital), 5.75%
due 7/01/2025 2,790
1,500 (South Jersey Hospital), 6% due 7/01/2026 1,589
- -------------------------------------------------------------------------------
New Jersey Health Care Facilities Financing Authority,
Revenue Refunding Bonds:
910 (Atlantic City Medical Center), 6.25%
due 7/01/2017 1,003
1,500 (Bayshore Community Hospital), 5.125%
due 7/01/2032 (i) 1,529
600 (Capital Health System, Inc.), Series A, 5.75%
due 7/01/2023 634
125 (General Hospital Center at Passaic), 6.75%
due 7/01/2019 (d)(g) 151
150 (Saint Joseph's Hospital and Medical Center),
Series A, 6% due 7/01/2026 (n) 153
400 (Trinitas Hospital Obligation Group), 7.40%
due 7/01/2020 442
- -------------------------------------------------------------------------------
805 New Jersey Sports and Exposition Authority, Luxury Tax
Revenue Refunding Bonds (Convention Center), 5.50%
due 3/01/2021 (e) 905
- -------------------------------------------------------------------------------
200 New Jersey Sports and Exposition Authority, State
Contract Revenue Bonds, VRDN, Series C, 3.57%
due 9/01/2024 (e)(k) 200
- -------------------------------------------------------------------------------
800 New Jersey State Educational Facilities Authority, Higher
Education, Capital Improvement Revenue Bonds,
Series A, 5.125% due 9/01/2022 (a) 842
- -------------------------------------------------------------------------------
New Jersey State Educational Facilities Authority
Revenue Bonds:
750 (Georgian Court College Project), Series C, 6.50%
due 7/01/2033 827
250 (Kean University), Series D, 5.25%
due 7/01/2023 (b) 266
- -------------------------------------------------------------------------------
New Jersey State Educational Facilities Authority
Revenue Bonds (concluded):
500 (Montclair State University), Series F, 5%
due 7/01/2031 (b) 510
1,000 (New Jersey Institute of Technology), Series G,
5.25% due 7/01/2019 (e) 1,053
1,120 (Public Library Project Grant Issue), Series A, 5.50%
due 9/01/2019 (a) 1,207
1,000 (Rider University), Series A, 5.125%
due 7/01/2028 (i) 1,039
715 (Rowan University), Series C, 5.125%
due 7/01/2028 (e) 746
650 (Rowan University), Series C, 5% due 7/01/2034 (e) 670
- -------------------------------------------------------------------------------
100 New Jersey State Educational Facilities Authority,
Revenue Refunding Bonds (Rowan University), Series C,
5% due 7/01/2031 (b) 103
- -------------------------------------------------------------------------------
15 New Jersey State Higher Education Assistance Authority,
Student Loan Revenue Bonds, AMT, Series A, 5.30%
due 6/01/2017 (a) 15
- -------------------------------------------------------------------------------
2,175 New Jersey State Housing and Mortgage Finance
Agency, Capital Fund Program Revenue Bonds, Series A,
4.70% due 11/01/2025 (d) 2,190
- -------------------------------------------------------------------------------
300 New Jersey State Housing and Mortgage Finance
Agency, M/F Housing Revenue Refunding Bonds,
Series B, 6.15% due 11/01/2020 (d) 315
- -------------------------------------------------------------------------------
2,770 New Jersey State Housing and Mortgage Finance
Agency, M/F Revenue Bonds, RIB, AMT, Series 1012,
5.77% due 11/01/2035 (b)(c) 2,720
- -------------------------------------------------------------------------------
New Jersey State Transportation Trust Fund Authority,
Transportation System Revenue Bonds:
1,380 Series C, 5.05% due 12/15/2035 (a)(m) 335
1,880 Series D, 5% due 6/15/2020 1,952
3,000 Series D, 5% due 6/15/2020 (d) 3,138
- -------------------------------------------------------------------------------
New Jersey State Transportation Trust Fund Authority,
Transportation System Revenue Refunding Bonds,
Series B (e):
1,560 6.50% due 6/15/2010 1,704
940 6.50% due 6/15/2010 (g) 1,031
1,800 5.50% due 12/15/2021 2,030
- -------------------------------------------------------------------------------
New Jersey State Turnpike Authority, Turnpike
Revenue Bonds:
1,510 Series B, 5.15% due 1/01/2035 (a)(m) 1,011
2,500 Series C, 5% due 1/01/2030 (d) 2,583
- -------------------------------------------------------------------------------
New Jersey State Turnpike Authority, Turnpike Revenue
Refunding Bonds, Series A (b):
400 5% due 1/01/2019 419
1,000 5% due 1/01/2027 1,030
- -------------------------------------------------------------------------------
955 Newark, New Jersey, Health Care Facility Revenue
Refunding Bonds (New Community Urban Renewal),
Series A, 5.20% due 6/01/2030 (h)(j) 996
- -------------------------------------------------------------------------------
ANNUAL REPORTS JULY 31, 2006 21
Schedule of Investments (continued)
Merrill Lynch New Jersey Municipal Bond Fund (in Thousands)
Face
Amount Municipal Bonds Value
===============================================================================
New Jersey (concluded)
- -------------------------------------------------------------------------------
$ 400 Old Bridge Township, New Jersey, Board of Education,
GO, 5% due 7/15/2030 (e) $ 409
- -------------------------------------------------------------------------------
Port Authority of New York and New Jersey,
Consolidated Revenue Bonds:
1,000 85th Series, 5.20% due 9/01/2018 1,077
1,000 93rd Series, 6.125% due 6/01/2094 1,173
- -------------------------------------------------------------------------------
Port Authority of New York and New Jersey, Special
Obligation Revenue Bonds (JFK International Air
Terminal LLC), AMT (e):
1,000 RIB, Series 157, 7.52% due 12/01/2022 (c) 1,084
1,750 Series 6, 6.25% due 12/01/2011 1,925
- -------------------------------------------------------------------------------
700 Port Authority of New York and New Jersey, Special
Obligation Revenue Refunding Bonds (Versatile
Structure Obligation), VRDN, Series 3, 3.60%
due 6/01/2020 (k) 700
- -------------------------------------------------------------------------------
1,500 South Jersey Port Corporation of New Jersey, Revenue
Refunding Bonds, AMT, 5.20% due 1/01/2023 1,534
- -------------------------------------------------------------------------------
1,445 Tobacco Settlement Financing Corporation of New
Jersey, Asset-Backed Revenue Bonds, 7%
due 6/01/2041 1,646
- -------------------------------------------------------------------------------
500 Union County, New Jersey, Improvement Authority,
Lease Revenue Bonds (Madison Redevelopment
Project), 5% due 3/01/2025 (d) 516
- -------------------------------------------------------------------------------
2,000 Union County, New Jersey, Utilities Authority, Senior
Lease Revenue Refunding Bonds (Ogden Martin System
of Union, Inc.), AMT, Series A, 5.50% due 6/01/2010 (a) 2,104
- -------------------------------------------------------------------------------
250 University of Medicine and Dentistry of New Jersey,
COP, 5% due 4/15/2022 (a) 259
- -------------------------------------------------------------------------------
University of Medicine and Dentistry of New Jersey,
Revenue Bonds, Series A (a):
250 5.125% due 12/01/2022 263
1,030 5.50% due 12/01/2027 1,103
1,500 5% due 12/01/2031 1,539
- -------------------------------------------------------------------------------
===============================================================================
Guam--1.6%
- -------------------------------------------------------------------------------
750 Commonwealth of the Northern Mariana Islands,
Guam, GO, Series A, 6.75% due 10/01/2033 832
- -------------------------------------------------------------------------------
1,000 Guam Government Waterworks Authority, Water and
Wastewater System, Revenue Refunding Bonds,
5.875% due 7/01/2035 1,044
- -------------------------------------------------------------------------------
===============================================================================
Puerto Rico--4.5%
- -------------------------------------------------------------------------------
Puerto Rico Commonwealth Highway and
Transportation Authority, Transportation
Revenue Refunding Bonds, Series K:
660 5% due 7/01/2040 661
525 5% due 7/01/2045 526
- -------------------------------------------------------------------------------
1,170 Puerto Rico Electric Power Authority, Power Revenue
Bonds, Series HH, 5.25% due 7/01/2029 (d) 1,226
- -------------------------------------------------------------------------------
70 Puerto Rico Housing Bank and Finance Agency, S/F
Mortgage Revenue Bonds (Affordable Housing
Mortgage Subsidy Program--Portfolio I), AMT, 6.25%
due 4/01/2029 (h)(o)(p) 71
- -------------------------------------------------------------------------------
1,345 Puerto Rico Industrial, Medical and Environmental
Pollution Control Facilities Financing Authority, Special
Facilities Revenue Bonds (American Airlines Inc.),
Series A, 6.45% due 12/01/2025 1,346
- -------------------------------------------------------------------------------
1,250 Puerto Rico Municipal Finance Agency, GO, Series A,
5% due 8/01/2021 (d) 1,317
- -------------------------------------------------------------------------------
===============================================================================
U.S. Virgin Islands--2.1%
- -------------------------------------------------------------------------------
1,400 Virgin Islands Government Refinery Facilities, Revenue
Refunding Bonds (Hovensa Coker Project), AMT,
6.50% due 7/01/2021 1,568
- -------------------------------------------------------------------------------
750 Virgin Islands Public Finance Authority, Refinery
Facilities Revenue Bonds (Hovensa Refinery), AMT,
5.875% due 7/01/2022 813
- -------------------------------------------------------------------------------
Total Municipal Bonds
(Cost--$107,135)--98.2% 112,457
===============================================================================
Shares
Held Short-Term Securities
===============================================================================
1,252 CMA New Jersey Municipal Money Fund, 3.03% (l)(q) 1,252
- -------------------------------------------------------------------------------
Total Short-Term Securities
(Cost--$1,252)--1.1% 1,252
===============================================================================
Total Investments (Cost--$108,387*)--99.3% 113,709
Other Assets Less Liabilities--0.7% 837
--------
Net Assets--100.0% $114,546
========
22 ANNUAL REPORTS JULY 31, 2006
Schedule of Investments (continued)
Merrill Lynch New Jersey Municipal Bond Fund (in Thousands)
* The cost and unrealized appreciation (depreciation) of investments as of
July 31, 2006, as computed for federal income tax purposes, were as
follows:
Aggregate cost ................................................ $108,249
========
Gross unrealized appreciation ................................. $ 5,742
Gross unrealized depreciation ................................. (282)
--------
Net unrealized appreciation ................................... $ 5,460
========
(a) AMBAC Insured.
(b) FGIC Insured.
(c) The rate disclosed is that currently in effect. This rate changes
periodically and inversely based upon prevailing market rates.
(d) FSA Insured.
(e) MBIA Insured.
(f) Prerefunded.
(g) Escrowed to maturity.
(h) GNMA Collateralized.
(i) Radian Insured.
(j) FHA Insured.
(k) Security may have a maturity of more than one year at time of issuance,
but has variable rate and demand features that qualify it as a short-term
security. The rate disclosed is that currently in effect. This rate
changes periodically based upon prevailing market rates.
(l) Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
-------------------------------------------------------------------------
Net Dividend
Affiliate Activity Income
-------------------------------------------------------------------------
CMA New Jersey Municipal Money Fund 1,128 $ 19
-------------------------------------------------------------------------
(m) Represents a zero coupon bond; the interest rate shown reflects the
effective yield at the time of purchase.
(n) Connie Lee Insured.
(o) FHLMC Collateralized.
(p) FNMA Collateralized.
(q) Represents the current yield as of July 31, 2006.
See Notes to Financial Statements.
ANNUAL REPORTS JULY 31, 2006 23
Schedule of Investments
Merrill Lynch Pennsylvania Municipal Bond Fund (in Thousands)
Face
Amount Municipal Bonds Value
===============================================================================
Pennsylvania--74.3%
- -------------------------------------------------------------------------------
$4,395 Allegheny County, Pennsylvania, IDA, Commercial
Development Revenue Refunding Bonds (MPB
Associates Project), 7.70% due 12/01/2013 (f) $ 4,985
- -------------------------------------------------------------------------------
Allegheny County, Pennsylvania, IDA, Environmental
Improvement Revenue Refunding Bonds:
1,000 5.50% due 11/01/2016 1,038
1,500 (USX Corporation), 6.10% due 7/15/2020 1,543
- -------------------------------------------------------------------------------
1,000 Allegheny County, Pennsylvania, IDA, Lease Revenue
Refunding Bonds (Residential Resources, Inc. Project),
5.125% due 9/01/2031 993
- -------------------------------------------------------------------------------
1,000 Allegheny County, Pennsylvania, Redevelopment Authority,
Tax Increment Revenue Bonds (Waterfront Project),
Series A, 6.30% due 12/15/2018 1,076
- -------------------------------------------------------------------------------
260 Allegheny County, Pennsylvania, Residential Finance
Authority, S/F Mortgage Revenue Bonds, AMT, Series TT, 5%
due 5/01/2035 (e) 259
- -------------------------------------------------------------------------------
1,000 Bradford County, Pennsylvania, IDA, Solid Waste Disposal
Revenue Refunding Bonds (International Paper Company
Project), AMT, Series B, 5.20% due 12/01/2019 996
- -------------------------------------------------------------------------------
770 Bucks County, Pennsylvania, IDA, Retirement Community
Revenue Bonds (Ann's Choice, Inc.), Series A, 5.90%
due 1/01/2027 782
- -------------------------------------------------------------------------------
1,000 Bucks County, Pennsylvania, IDA, Revenue Refunding Bonds
(Pennswood Village Project), Series A, 6% due 10/01/2027 1,053
- -------------------------------------------------------------------------------
500 Chester County, Pennsylvania, Health and Education
Facilities Authority, Revenue Refunding Bonds (Devereux
Foundation), 5% due 11/01/2031 506
- -------------------------------------------------------------------------------
1,000 Delaware County, Pennsylvania, Hospital Authority Revenue
Bonds, GO (Crozer-Chester Medical Center), 6.25%
due 12/15/2022 1,070
- -------------------------------------------------------------------------------
1,000 Delaware Valley Regional Finance Authority, Pennsylvania,
Local Government Revenue Bonds, 5.75% due 7/01/2032 1,134
- -------------------------------------------------------------------------------
500 Fulton County, Pennsylvania, IDA, Hospital Revenue Bonds
(Fulton County Medical Center Project), 5.90%
due 7/01/2040 506
- -------------------------------------------------------------------------------
1,000 Lancaster County, Pennsylvania, Hospital Authority Revenue
Bonds (Lancaster General Hospital Project), 5.50%
due 3/15/2026 1,045
- -------------------------------------------------------------------------------
1,000 Lebanon County, Pennsylvania, Health Facilities Authority,
Health Center Revenue Bonds (Pleasant View Retirement
Project), Series A, 5.30% due 12/15/2026 990
- -------------------------------------------------------------------------------
2,250 Lehigh County, Pennsylvania, General Purpose Authority,
Hospital Revenue Refunding Bonds (Saint Lukes Hospital of
Bethlehem), 5.375% due 8/15/2033 2,319
- -------------------------------------------------------------------------------
1,500 Luzerne County, Pennsylvania, IDA, Water Facility Revenue
Refunding Bonds, RIB, AMT, Series 1170, 6.26%
due 9/01/2034 (a)(j) 1,569
- -------------------------------------------------------------------------------
Mifflin County, Pennsylvania, Hospital Authority, Revenue
Refunding Bonds (Lewiston Hospital) (i):
2,550 6.40% due 7/01/2020 2,796
1,000 6.20% due 7/01/2030 1,087
- -------------------------------------------------------------------------------
1,000 Montgomery County, Pennsylvania, IDA, Revenue Refunding
Bonds (Foulkeways at Gwynedd Project), Series A, 5%
due 12/01/2024 1,002
- -------------------------------------------------------------------------------
2,500 Northumberland County, Pennsylvania, IDA, Water Facilities
Revenue Refunding Bonds (Aqua Pennsylvania Inc. Project),
AMT, 5.05% due 10/01/2039 (d) 2,542
- -------------------------------------------------------------------------------
300 Pennsylvania Economic Development Financing Authority,
Solid Waste Disposal Revenue Bonds (Waste Management,
Inc. Project), AMT, Series A, 5.10% due 10/01/2027 303
- -------------------------------------------------------------------------------
600 Pennsylvania HFA, S/F Mortgage Revenue Refunding Bonds,
AMT, Series 92-A, 4.75% due 4/01/2031 585
- -------------------------------------------------------------------------------
2,000 Pennsylvania HFA, S/F Revenue Refunding Bonds, AMT,
Series 73A, 5.45% due 10/01/2032 2,043
- -------------------------------------------------------------------------------
300 Pennsylvania State Higher Educational Facilities
Authority, College and University Revenue Bonds (Ursinus
College), 5% due 1/01/2036 (i) 305
- -------------------------------------------------------------------------------
2,000 Pennsylvania State Higher Educational Facilities
Authority, College and University Revenue Refunding Bonds
(University of the Arts), Series A, 5% due 9/15/2033 (i) 2,035
- -------------------------------------------------------------------------------
Pennsylvania State Higher Educational Facilities
Authority, Revenue Refunding Bonds:
500 (University Properties, Inc., Student Housing
Project), Series A, 5% due 8/01/2035 (b) 512
500 (Widener University), 5.375% due 7/15/2029 520
- -------------------------------------------------------------------------------
2,500 Pennsylvania State Public School Building Authority,
School Revenue Bonds, DRIVERS, Series 371, 6.53%
due 6/01/2011 (f)(j) 2,754
- -------------------------------------------------------------------------------
2,500 Pennsylvania State Turnpike Commission, Oil Franchise Tax
Revenue Bonds, DRIVERS, Series 366, 7.029%
due 6/01/2011 (h)(j) 2,881
- -------------------------------------------------------------------------------
800 Pennsylvania State Turnpike Commission, Turnpike Revenue
Bonds, DRIVERS, Series 460-Z, 7.029% due 6/01/2012 (a)(j) 930
- -------------------------------------------------------------------------------
2,000 Philadelphia, Pennsylvania, Airport Revenue Bonds,
Series A, AMT, 4.75% due 6/15/2035 (h) 1,984
- -------------------------------------------------------------------------------
Philadelphia, Pennsylvania, Authority for Industrial
Development, Senior Living Revenue Bonds:
500 (Rieder House Project), Series A, 6.10% due 7/01/2033 518
500 (Saligman House Project), Series C, 6.10% due
7/01/2033 518
- -------------------------------------------------------------------------------
1,920 Philadelphia, Pennsylvania, Gas Works Revenue Bonds, 12th
Series B, 7% due 5/15/2020 (c)(h) 2,282
- -------------------------------------------------------------------------------
3,000 Philadelphia, Pennsylvania, Hospitals and Higher Education
Facilities Authority, Hospital Revenue Refunding Bonds
(Presbyterian Medical Center), 6.65% due 12/01/2019 (c) 3,584
- -------------------------------------------------------------------------------
415 Philadelphia, Pennsylvania, Qualified Redevelopment
Authority Revenue Bonds, AMT, Series B, 5%
due 4/15/2027 (d) 422
- -------------------------------------------------------------------------------
1,400 Sayre, Pennsylvania, Health Care Facilities Authority,
Revenue Refunding Bonds (Guthrie Healthcare System),
Series A, 5.875% due 12/01/2031 1,493
- -------------------------------------------------------------------------------
500 South Central General Authority, Pennsylvania, Hospital
Revenue Bonds (Hanover Hospital, Inc.), 5%
due 12/01/2030 (i) 509
- -------------------------------------------------------------------------------
315 South Central General Authority, Pennsylvania, Revenue
Refunding Bonds (Wellspan Health Obligated Group),
5.625% due 5/15/2026 (c) 339
- -------------------------------------------------------------------------------
24 ANNUAL REPORTS JULY 31, 2006
Schedule of Investments (concluded)
Merrill Lynch Pennsylvania Municipal Bond Fund (in Thousands)
Face
Amount Municipal Bonds Value
===============================================================================
Guam--2.2%
- -------------------------------------------------------------------------------
$ 500 Commonwealth of the Northern Mariana Islands, Guam,
GO, Series A, 6.75% due 10/01/2033 $ 555
- -------------------------------------------------------------------------------
1,000 Guam Government Waterworks Authority, Water and
Wastewater System, Revenue Refunding Bonds, 6%
due 7/01/2025 1,061
- -------------------------------------------------------------------------------
===============================================================================
Puerto Rico--20.3%
- -------------------------------------------------------------------------------
1,255 Children's Trust Fund Project of Puerto Rico, Tobacco
Settlement Revenue Refunding Bonds, 5.375%
due 5/15/2033 1,284
- -------------------------------------------------------------------------------
2,000 Puerto Rico Commonwealth, GO, Refunding, RITR, Class R,
Series 3, 7.503% due 7/01/2016 (h)(j) 2,282
- -------------------------------------------------------------------------------
2,000 Puerto Rico Commonwealth Highway and Transportation
Authority, Transportation Revenue Bonds, Series G, 5%
due 7/01/2033 2,015
- -------------------------------------------------------------------------------
5,260 Puerto Rico Commonwealth, Public Improvement, GO,
Series A, 5% due 7/01/2034 5,303
- -------------------------------------------------------------------------------
750 Puerto Rico Ports Authority, Special Facilities Revenue
Bonds (American Airlines Inc.), AMT, Series A, 6.25% due
6/01/2026 741
- -------------------------------------------------------------------------------
2,940 Puerto Rico Public Buildings Authority, Government
Facilities Revenue Refunding Bonds, Series D, 5.375%
due 7/01/2033 3,040
- -------------------------------------------------------------------------------
===============================================================================
U.S. Virgin Islands--2.3%
- -------------------------------------------------------------------------------
1,000 Virgin Islands Government Refinery Facilities, Revenue
Refunding Bonds (Hovensa Coker Project), AMT, 6.50%
due 7/01/2021 1,120
- -------------------------------------------------------------------------------
500 Virgin Islands Public Finance Authority, Refinery
Facilities Revenue Bonds (Hovensa Refinery), AMT, 6.125%
due 7/01/2022 547
- -------------------------------------------------------------------------------
Total Municipal Bonds (Cost--$68,313)--99.1% 71,756
===============================================================================
Shares
Held Short-Term Securities
===============================================================================
1,251 CMA Pennsylvania Municipal Money Fund, 2.99% (g)(k) 1,251
- -------------------------------------------------------------------------------
Total Short-Term Securities (Cost--$1,251)--1.7% 1,251
- -------------------------------------------------------------------------------
Total Investments (Cost--$69,564*)--100.8% 73,007
Liabilities in Excess of Other Assets--(0.8%) (567)
--------
Net Assets--100.0% $ 72,440
========
- -------------------------------------------------------------------------------
* The cost and unrealized appreciation (depreciation) of investments as of
July 31, 2006, as computed for federal income tax purposes, were as
follows:
Aggregate cost ................................................ $ 69,551
========
Gross unrealized appreciation ................................. $ 3,611
Gross unrealized depreciation ................................. (155)
--------
Net unrealized appreciation ................................... $ 3,456
========
(a) AMBAC Insured.
(b) CIFG Insured.
(c) Escrowed to maturity.
(d) FGIC Insured.
(e) FNMA/GNMA Collateralized.
(f) FSA Insured.
(g) Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
--------------------------------------------------------------------------
Net Dividend
Affiliate Activity Income
--------------------------------------------------------------------------
CMA Pennsylvania Municipal Money Fund 942 $ 41
--------------------------------------------------------------------------
(h) MBIA Insured.
(i) Radian Insured.
(j) The rate disclosed is that currently in effect. This rate changes
periodically and inversely based upon prevailing market rates.
(k) Represents the current yield as of July 31, 2006.
o Forward interest rate swaps outstanding as of July 31, 2006 were as
follows:
-------------------------------------------------------------------------
Notional Unrealized
Amount Depreciation
-------------------------------------------------------------------------
Pay a fixed rate of 4.444% and receive a
floating rate based on a 1-week Bond Market
Association rate Municipal Swap Index Rate
Broker, JPMorgan Chase Bank
Expires August 2026 $1,000 $ (20)
Pay a fixed rate of 4.344% and receive a
floating rate based on a 1-week Bond Market
Association rate Municipal Swap Index Rate
Broker, JPMorgan Chase Bank
Expires October 2026 $5,500 (37)
-------------------------------------------------------------------------
Total $ (57)
===========
See Notes to Financial Statements.
ANNUAL REPORTS JULY 31, 2006 25
Statements of Assets and Liabilities
Merrill Lynch Merrill Lynch Merrill Lynch
Florida New Jersey Pennsylvania
Municipal Municipal Municipal
As of July 31, 2006 Bond Fund Bond Fund Bond Fund
===================================================================================================================================
Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value* ................ $ 124,666,726 $ 112,456,787 $ 71,755,772
Investments in affiliated securities, at value** ................. 4,968 1,252,112 1,251,186
Cash ............................................................. 64,092 26,416 29,708
Interest receivable .............................................. 1,411,693 1,071,988 696,592
Receivable for beneficial interest sold .......................... 8,011 100,569 93,007
Receivable for securities sold ................................... 30,000 -- --
Dividends receivable ............................................. 7,913 -- --
Prepaid expenses ................................................. 4,970 11,970 9,774
-------------------------------------------------
Total assets ..................................................... 126,198,373 114,919,842 73,836,039
-------------------------------------------------
===================================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------------
Unrealized depreciation on forward interest rate swaps ........... -- -- 56,511
Payable for securities purchased ................................. -- -- 991,160
Payable for beneficial interest redeemed ......................... 62,808 155,517 193,429
Dividends payable to shareholders ................................ 113,175 100,205 66,790
Payable to investment adviser .................................... 55,070 49,181 30,975
Payable to distributor ........................................... 23,252 20,681 16,804
Payable for other affiliates ..................................... 4,534 4,255 3,714
Accrued expenses ................................................. 40,778 43,772 36,382
-------------------------------------------------
Total liabilities ................................................ 299,617 373,611 1,395,765
-------------------------------------------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets ....................................................... $ 125,898,756 $ 114,546,231 $ 72,440,274
=================================================
===================================================================================================================================
Net Assets Consist of
- -----------------------------------------------------------------------------------------------------------------------------------
Undistributed investment income--net ............................. $ 123,585 $ 231,672 $ 73,316
Accumulated realized capital losses--net ......................... (4,986,248) (7,238,982) (408,181)
Unrealized appreciation--net ..................................... 4,054,565 5,322,199 3,386,293
-------------------------------------------------
Total accumulated earnings (losses)--net ......................... (808,098) (1,685,111) 3,051,428
-------------------------------------------------
Class A Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized ..................................... 576,857 381,690 241,004
Class B Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized ..................................... 249,116 196,503 164,536
Class C Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized ..................................... 170,230 184,466 139,845
Class I Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized ..................................... 229,553 312,986 102,011
Paid-in capital in excess of par ................................. 125,481,098 115,155,697 68,741,450
-------------------------------------------------
Net Assets ....................................................... $ 125,898,756 $ 114,546,231 $ 72,440,274
=================================================
26 ANNUAL REPORTS JULY 31, 2006
Statements of Assets and Liabilities (concluded)
Merrill Lynch Merrill Lynch Merrill Lynch
Florida New Jersey Pennsylvania
Municipal Municipal Municipal
As of July 31, 2006 Bond Fund Bond Fund Bond Fund
===================================================================================================================================
Net Asset Value
- -----------------------------------------------------------------------------------------------------------------------------------
Class A:
Net assets .................................................... $ 59,209,938 $ 40,676,299 $ 26,986,733
=================================================
Shares of beneficial interest outstanding ..................... 5,768,572 3,816,897 2,410,040
=================================================
Net asset value ............................................... $ 10.26 $ 10.66 $ 11.20
=================================================
Class B:
Net assets .................................................... $ 25,614,004 $ 20,920,003 $ 18,401,818
=================================================
Shares of beneficial interest outstanding ..................... 2,491,157 1,965,030 1,645,358
=================================================
Net asset value ............................................... $ 10.28 $ 10.65 $ 11.18
=================================================
Class C:
Net assets .................................................... $ 17,471,521 $ 19,633,609 $ 15,642,157
=================================================
Shares of beneficial interest outstanding ..................... 1,702,302 1,844,661 1,398,454
=================================================
Net asset value ............................................... $ 10.26 $ 10.64 $ 11.19
=================================================
Class I:
Net assets .................................................... $ 23,603,293 $ 33,316,320 $ 11,409,566
=================================================
Shares of beneficial interest outstanding ..................... 2,295,528 3,129,856 1,020,109
=================================================
Net asset value ............................................... $ 10.28 $ 10.64 $ 11.18
=================================================
* Identified cost on unaffiliated securities .................. $ 120,612,161 $ 107,134,588 $ 68,312,968
=================================================
** Identified cost on affiliated securities .................... $ 4,968 $ 1,252,112 $ 1,251,186
=================================================
See Notes to Financial Statements.
ANNUAL REPORTS JULY 31, 2006 27
Statements of Operations
Merrill Lynch Merrill Lynch Merrill Lynch
Florida New Jersey Pennsylvania
Municipal Municipal Municipal
For the Year Ended July 31, 2006 Bond Fund Bond Fund Bond Fund
===================================================================================================================================
Investment Income
- -----------------------------------------------------------------------------------------------------------------------------------
Interest ......................................................... $ 6,615,119 $ 5,343,895 $ 3,818,792
Dividends* ....................................................... 131,875 19,239 40,883
-------------------------------------------------
Total income ..................................................... 6,746,994 5,363,134 3,859,675
-------------------------------------------------
===================================================================================================================================
Expenses
- -----------------------------------------------------------------------------------------------------------------------------------
Investment advisory fees ......................................... 715,506 581,624 399,562
Account maintenance and distribution fees--Class B ............... 151,976 118,034 106,139
Account maintenance and distribution fees--Class C ............... 100,916 103,533 87,240
Accounting services .............................................. 90,666 84,307 75,803
Professional fees ................................................ 55,395 58,349 49,775
Account maintenance fees--Class A ................................ 60,083 36,024 26,523
Printing and shareholder reports ................................. 35,422 30,580 22,267
Registration fees ................................................ 19,771 14,831 13,469
Trustees' fees and expenses ...................................... 15,375 14,665 13,838
Transfer agent fees--Class I ..................................... 20,551 11,193 5,417
Transfer agent fees--Class B ..................................... 12,173 11,309 12,944
Transfer agent fees--Class A ..................................... 7,793 14,033 13,906
Pricing fees ..................................................... 11,531 12,158 8,028
Custodian fees ................................................... 10,548 8,033 6,904
Transfer agent fees--Class C ..................................... 6,646 7,787 8,727
Other ............................................................ 19,188 18,967 17,938
-------------------------------------------------
Total expenses before reimbursement .............................. 1,333,540 1,125,427 868,480
Reimbursement of expenses ........................................ (1,030) (3,541) (8,517)
-------------------------------------------------
Total expenses after reimbursement ............................... 1,332,510 1,121,886 859,963
-------------------------------------------------
Investment income--net ........................................... 5,414,484 4,241,248 2,999,712
-------------------------------------------------
===================================================================================================================================
Realized & Unrealized Gain (Loss)--Net
- -----------------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on:
Investments--net .............................................. (283,326) 131,336 202,314
Financial futures contracts and swaps--net .................... -- 598,358 263,424
-------------------------------------------------
Total realized gain (loss)--net .................................. (283,326) 729,694 465,738
-------------------------------------------------
Change in unrealized appreciation/depreciation on:
Investments--net .............................................. (2,051,210) (1,380,522) (1,769,789)
Financial futures contracts and swaps--net .................... -- (108,531) (61,143)
-------------------------------------------------
Total unrealized depreciation--net ............................... (2,051,210) (1,489,053) (1,830,932)
-------------------------------------------------
Total realized and unrealized loss--net .......................... (2,334,536) (759,359) (1,365,194)
-------------------------------------------------
Net Increase in Net Assets Resulting from Operations ............. $ 3,079,948 $ 3,481,889 $ 1,634,518
=================================================
* Dividends from affiliates ..................................... $ 5,237 $ 19,239 $ 40,883
=================================================
See Notes to Financial Statements.
28 ANNUAL REPORTS JULY 31, 2006
Statements of Changes in Net Assets Merrill Lynch Florida Municipal Bond Fund
For the Year Ended
July 31,
---------------------------------
Increase (Decrease) in Net Assets: 2006 2005
===================================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Investment income--net ......................................................... $ 5,414,484 $ 5,980,015
Realized gain (loss)--net ...................................................... (283,326) 1,354,628
Change in unrealized appreciation/depreciation--net ............................ (2,051,210) 2,619,496
---------------------------------
Net increase in net assets resulting from operations ........................... 3,079,948 9,954,139
---------------------------------
===================================================================================================================================
Dividends to Shareholders
- -----------------------------------------------------------------------------------------------------------------------------------
Investment income--net:
Class A ..................................................................... (2,586,269) (2,778,903)
Class B ..................................................................... (1,185,478) (1,636,155)
Class C ..................................................................... (638,716) (600,865)
Class I ..................................................................... (1,004,021) (962,289)
---------------------------------
Net decrease in net assets resulting from dividends to shareholders ............ (5,414,484) (5,978,212)
---------------------------------
===================================================================================================================================
Beneficial Interest Transactions
- -----------------------------------------------------------------------------------------------------------------------------------
Net decrease in net assets derived from beneficial interest transactions ....... (3,569,331) (4,460,831)
---------------------------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Total decrease in net assets ................................................... (5,903,867) (484,904)
Beginning of year .............................................................. 131,802,623 132,287,527
---------------------------------
End of year* ................................................................... $ 125,898,756 $ 131,802,623
=================================
* Undistributed investment income--net ...................................... $ 123,585 $ 123,585
=================================
See Notes to Financial Statements.
ANNUAL REPORTS JULY 31, 2006 29
Statements of Changes in Net Assets
Merrill Lynch New Jersey Municipal Bond Fund
For the Year Ended
July 31,
---------------------------------
Increase (Decrease) in Net Assets: 2006 2005
===================================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Investment income--net ......................................................... $ 4,241,248 $ 4,389,634
Realized gain--net ............................................................. 729,694 1,989,997
Change in unrealized appreciation/depreciation--net ............................ (1,489,053) 2,691,716
---------------------------------
Net increase in net assets resulting from operations ........................... 3,481,889 9,071,347
---------------------------------
===================================================================================================================================
Dividends & Distributions to Shareholders
- -----------------------------------------------------------------------------------------------------------------------------------
Investment income--net:
Class A ..................................................................... (1,482,198) (1,490,173)
Class B ..................................................................... (875,086) (1,205,519)
Class C ..................................................................... (622,496) (603,550)
Class I ..................................................................... (1,215,782) (1,038,240)
Realized gain--net:
Class A ..................................................................... (12,456) --
Class B ..................................................................... (8,754) --
Class C ..................................................................... (6,080) --
Class I ..................................................................... (9,352) --
---------------------------------
Net decrease in net assets resulting from dividends and distributions to
shareholders .................................................................. (4,232,204) (4,337,482)
---------------------------------
===================================================================================================================================
Beneficial Interest Transactions
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets derived from beneficial interest transactions ....... 12,420,544 3,429,108
---------------------------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets ................................................... 11,670,229 8,162,973
Beginning of year .............................................................. 102,876,002 94,713,029
---------------------------------
End of year* ................................................................... $ 114,546,231 $ 102,876,002
=================================
* Undistributed investment income--net ...................................... $ 231,672 $ 186,932
=================================
See Notes to Financial Statements.
30 ANNUAL REPORTS JULY 31, 2006
Statements of Changes in Net Assets
Merrill Lynch Pennsylvania Municipal Bond Fund
For the Year Ended
July 31,
---------------------------------
Increase (Decrease) in Net Assets: 2006 2005
===================================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Investment income--net ......................................................... $ 2,999,712 $ 3,189,482
Realized gain--net ............................................................. 465,738 606,108
Change in unrealized appreciation/depreciation--net ............................ (1,830,932) 1,256,272
---------------------------------
Net increase in net assets resulting from operations ........................... 1,634,518 5,051,862
---------------------------------
===================================================================================================================================
Dividends to Shareholders
- -----------------------------------------------------------------------------------------------------------------------------------
Investment income--net:
Class A ..................................................................... (1,147,819) (1,149,528)
Class B ..................................................................... (831,770) (1,052,997)
Class C ..................................................................... (555,476) (524,250)
Class I ..................................................................... (458,664) (457,845)
---------------------------------
Net decrease in net assets resulting from dividends to shareholders ............ (2,993,729) (3,184,620)
---------------------------------
===================================================================================================================================
Beneficial Interest Transactions
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets derived from beneficial interest
transactions .................................................................. 244,580 (6,288,632)
---------------------------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Total decrease in net assets ................................................... (1,114,631) (4,421,390)
Beginning of year .............................................................. 73,554,905 77,976,295
---------------------------------
End of year* ................................................................... $ 72,440,274 $ 73,554,905
=================================
* Undistributed investment income--net ...................................... $ 73,316 $ 67,333
=================================
See Notes to Financial Statements.
ANNUAL REPORTS JULY 31, 2006 31
Financial Highlights Class A
Merrill Lynch Florida Municipal Bond Fund
------------------------------------------------------------------------
For the Year Ended July 31,
The following per share data and ratios have been derived ------------------------------------------------------------------------
from information provided in the financial statements. 2006 2005 2004 2003 2002
====================================================================================================================================
Per Share Operating Performance
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year .......... $ 10.45 $ 10.14 $ 10.04 $ 10.19 $ 10.13
------------------------------------------------------------------------
Investment income--net ...................... .45+ .48+ .52+ .52+ .51
Realized and unrealized gain (loss)--net .... (.20) .31 .10 (.15) .06
------------------------------------------------------------------------
Total from investment operations ............ .25 .79 .62 .37 .57
------------------------------------------------------------------------
Less dividends and distributions:
Investment income--net ..................... (.44) (.48) (.52) (.52) (.51)
Realized gain--net ......................... -- -- -- -- --
------------------------------------------------------------------------
Total dividends and distributions ........... (.44) (.48) (.52) (.52) (.51)
------------------------------------------------------------------------
Net asset value, end of year ................ $ 10.26 $ 10.45 $ 10.14 $ 10.04 $ 10.19
========================================================================
====================================================================================================================================
Total Investment Return*
- ------------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share .......... 2.49% 7.98% 6.24% 3.66% 5.81%
========================================================================
====================================================================================================================================
Ratios to Average Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement .............. .88% .89% .87% .88% .89%
========================================================================
Expenses .................................... .88% .89% .88% .88% .89%
========================================================================
Investment income--net ...................... 4.30% 4.68% 5.05% 5.08% 5.07%
========================================================================
====================================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) ...... $ 59,210 $ 59,586 $ 57,521 $ 57,610 $ 43,909
========================================================================
Portfolio turnover .......................... 49.85% 54.26% 31.83% 45.50% 41.29%
========================================================================
* Total investment returns exclude the effect of sales charges.
+ Based on average shares outstanding.
@ Amount is less than $(.01) per share.
See Notes to Financial Statements.
32 ANNUAL REPORTS JULY 31, 2006
Merrill Lynch New Jersey Municipal Bond Fund Merrill Lynch Pennsylvania Municipal Bond Fund
- ------------------------------------------------------------ -----------------------------------------------------------
For the Year Ended July 31, For the Year Ended July 31,
- ------------------------------------------------------------ -----------------------------------------------------------
2006 2005 2004 2003 2002 2006 2005 2004 2003 2002
==============================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------
$ 10.73 $ 10.24 $ 10.22 $ 10.43 $ 10.48 $ 11.41 $ 11.13 $ 11.05 $ 11.17 $ 11.00
- ------------------------------------------------------------------------------------------------------------------------------
.44+ .47+ .51+ .50+ .48 .49+ .50+ .51+ .53+ .53
(.07) .48 .01 (.21) (.05) (.26) .28 .08 (.12) .17
- ------------------------------------------------------------------------------------------------------------------------------
.37 .95 .52 .29 .43 .23 .78 .59 .41 .70
- ------------------------------------------------------------------------------------------------------------------------------
(.44) (.46) (.50) (.50) (.48) (.44) (.50) (.51) (.53) (.53)
--@ -- -- -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
(.44) (.46) (.50) (.50) (.48) (.44) (.50) (.51) (.53) (.53)
- ------------------------------------------------------------------------------------------------------------------------------
$ 10.66 $ 10.73 $ 10.24 $ 10.22 $ 10.43 $ 11.20 $ 11.41 $ 11.13 $ 11.05 $ 11.17
==============================================================================================================================
==============================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------
3.55% 9.49% 5.14% 2.76% 4.22% 2.49% 7.16% 5.37% 3.69% 6.50%
==============================================================================================================================
==============================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------
.91% .93% .91% .93% .94% .98% 1.01% .98% .98% 1.00%
==============================================================================================================================
.92% .94% .92% .93% .94% .99% 1.02% 1.00% .99% 1.00%
==============================================================================================================================
4.16% 4.45% 4.85% 4.79% 4.63% 4.34% 4.45% 4.50% 4.69% 4.78%
==============================================================================================================================
==============================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------
$ 40,676 $ 34,618 $ 32,863 $ 27,868 $ 22,745 $ 26,987 $ 26,024 $ 25,432 $ 23,460 $ 16,295
==============================================================================================================================
18.94% 69.66% 30.76% 39.93% 41.39% 30.38% 36.25% 66.08% 34.92% 30.23%
==============================================================================================================================
ANNUAL REPORTS JULY 31, 2006 33
Financial Highlights (continued) Class B
Merrill Lynch Florida Municipal Bond Fund
------------------------------------------------------------------------
For the Year Ended July 31,
The following per share data and ratios have been derived ------------------------------------------------------------------------
from information provided in the financial statements. 2006 2005 2004 2003 2002
====================================================================================================================================
Per Share Operating Performance
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year .......... $ 10.47 $ 10.15 $ 10.06 $ 10.20 $ 10.14
------------------------------------------------------------------------
Investment income--net ...................... .40+ .44+ .48+ .48+ .47
Realized and unrealized gain (loss)--net .... (.19) .32 .09 (.14) .06
------------------------------------------------------------------------
Total from investment operations ............ .21 .76 .57 .34 .53
------------------------------------------------------------------------
Less dividends and distributions:
Investment income--net ..................... (.40) (.44) (.48) (.48) (.47)
Realized gain--net ......................... -- -- -- -- --
------------------------------------------------------------------------
Total dividends and distributions ........... (.40) (.44) (.48) (.48) (.47)
------------------------------------------------------------------------
Net asset value, end of year ................ $ 10.28 $ 10.47 $ 10.15 $ 10.06 $ 10.20
========================================================================
====================================================================================================================================
Total Investment Return*
- ------------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share .......... 2.08% 7.65% 5.70% 3.35% 5.38%
========================================================================
====================================================================================================================================
Ratios to Average Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement ............... 1.29% 1.30% 1.28% 1.28% 1.29%
========================================================================
Expenses ..................................... 1.29% 1.30% 1.28% 1.28% 1.29%
========================================================================
Investment income--net ....................... 3.90% 4.29% 4.64% 4.67% 4.65%
========================================================================
====================================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) ...... $ 25,614 $ 35,340 $ 41,705 $ 61,098 $ 73,034
========================================================================
Portfolio turnover .......................... 49.85% 54.26% 31.83% 45.50% 41.29%
========================================================================
* Total investment returns exclude the effect of sales charges.
+ Based on average shares outstanding.
@ Amount is less than $(.01) per share.
See Notes to Financial Statements.
34 ANNUAL REPORTS JULY 31, 2006
Merrill Lynch New Jersey Municipal Bond Fund Merrill Lynch Pennsylvania Municipal Bond Fund
- ------------------------------------------------------------ -----------------------------------------------------------
For the Year Ended July 31, For the Year Ended July 31,
- ------------------------------------------------------------ -----------------------------------------------------------
2006 2005 2004 2003 2002 2006 2005 2004 2003 2002
==============================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------
$ 10.73 $ 10.24 $ 10.22 $ 10.43 $ 10.48 $ 11.39 $ 11.12 $ 11.03 $ 11.16 $ 10.99
- ------------------------------------------------------------------------------------------------------------------------------
.40+ .43+ .46+ .46+ .44 .44+ .46+ .46+ .49+ .48
(.09) .48 .02 (.22) (.05) (.21) .27 .09 (.14) .17
- ------------------------------------------------------------------------------------------------------------------------------
.31 .91 .48 .24 .39 .23 .73 .55 .35 .65
- ------------------------------------------------------------------------------------------------------------------------------
(.39) (.42) (.46) (.45) (.44) (.44) (.46) (.46) (.48) (.48)
--@ -- -- -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
(.39) (.42) (.46) (.45) (.44) (.44) (.46) (.46) (.48) (.48)
- ------------------------------------------------------------------------------------------------------------------------------
$ 10.65 $ 10.73 $ 10.24 $ 10.22 $ 10.43 $ 11.18 $ 11.39 $ 11.12 $ 11.03 $ 11.16
==============================================================================================================================
==============================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------
3.03% 9.04% 4.71% 2.34% 3.80% 2.07% 6.63% 5.04% 3.18% 6.07%
==============================================================================================================================
==============================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------
1.33% 1.34% 1.32% 1.34% 1.35% 1.39% 1.42% 1.38% 1.39% 1.40%
==============================================================================================================================
1.33% 1.35% 1.33% 1.34% 1.35% 1.40% 1.43% 1.40% 1.40% 1.40%
==============================================================================================================================
3.75% 4.06% 4.44% 4.37% 4.21% 3.93% 4.05% 4.09% 4.31% 4.36%
==============================================================================================================================
==============================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------
$ 20,920 $ 26,893 $ 31,781 $ 44,968 $ 62,716 $ 18,402 $ 23,965 $ 28,749 $ 43,099 $ 54,421
==============================================================================================================================
18.94% 69.66% 30.76% 39.93% 41.39% 30.38% 36.25% 66.08% 34.92% 30.23%
==============================================================================================================================
ANNUAL REPORTS JULY 31, 2006 35
Financial Highlights (continued) Class C
Merrill Lynch Florida Municipal Bond Fund
------------------------------------------------------------------------
For the Year Ended July 31,
The following per share data and ratios have been derived ------------------------------------------------------------------------
from information provided in the financial statements. 2006 2005 2004 2003 2002
====================================================================================================================================
Per Share Operating Performance
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year .......... $ 10.45 $ 10.14 $ 10.04 $ 10.18 $ 10.13
------------------------------------------------------------------------
Investment income--net ...................... .39+ .43+ .47+ .47+ .46
Realized and unrealized gain (loss)--net .... (.19) .31 .10 (.14) .05
------------------------------------------------------------------------
Total from investment operations ............ .20 .74 .57 .33 .51
------------------------------------------------------------------------
Less dividends and distributions:
Investment income--net ..................... (.39) (.43) (.47) (.47) (.46)
Realized gain--net ......................... -- -- -- -- --
------------------------------------------------------------------------
Total dividends and distributions ........... (.39) (.43) (.47) (.47) (.46)
------------------------------------------------------------------------
Net asset value, end of year ................ $ 10.26 $ 10.45 $ 10.14 $ 10.04 $ 10.18
========================================================================
====================================================================================================================================
Total Investment Return*
- ------------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share .......... 1.98% 7.44% 5.70% 3.24% 5.17%
========================================================================
====================================================================================================================================
Ratios to Average Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement .............. 1.39% 1.40% 1.38% 1.38% 1.39%
========================================================================
Expenses .................................... 1.39% 1.40% 1.38% 1.39% 1.39%
========================================================================
Investment income--net ...................... 3.80% 4.17% 4.54% 4.57% 4.56%
========================================================================
====================================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) ...... $ 17,472 $ 16,229 $ 13,381 $ 14,759 $ 10,489
========================================================================
Portfolio turnover .......................... 49.85% 54.26% 31.83% 45.50% 41.29%
========================================================================
* Total investment returns exclude the effect of sales charges.
+ Based on average shares outstanding.
@ Amount is less than $(.01) per share.
See Notes to Financial Statements.
36 ANNUAL REPORTS JULY 31, 2006
Merrill Lynch New Jersey Municipal Bond Fund Merrill Lynch Pennsylvania Municipal Bond Fund
- ------------------------------------------------------------ -----------------------------------------------------------
For the Year Ended July 31, For the Year Ended July 31,
- ------------------------------------------------------------ -----------------------------------------------------------
2006 2005 2004 2003 2002 2006 2005 2004 2003 2002
==============================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------
$ 10.73 $ 10.24 $ 10.21 $ 10.42 $ 10.47 $ 11.39 $ 11.12 $ 11.03 $ 11.16 $ 10.99
- ------------------------------------------------------------------------------------------------------------------------------
.39+ .41+ .45+ .45+ .43 .43+ .45+ .45+ .47+ .47
(.10) .49 .02 (.22) (.05) (.20) .26 .09 (.13) .17
- ------------------------------------------------------------------------------------------------------------------------------
.29 .90 .47 .23 .38 .23 .71 .54 .34 .64
- ------------------------------------------------------------------------------------------------------------------------------
(.38) (.41) (.44) (.44) (.43) (.43) (.44) (.45) (.47) (.47)
--@ -- -- -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
(.38) (.41) (.44) (.44) (.43) (.43) (.44) (.45) (.47) (.47)
- ------------------------------------------------------------------------------------------------------------------------------
$ 10.64 $ 10.73 $ 10.24 $ 10.21 $ 10.42 $ 11.19 $ 11.39 $ 11.12 $ 11.03 $ 11.16
==============================================================================================================================
==============================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------
2.83% 8.94% 4.71% 2.24% 3.70% 2.06% 6.53% 4.93% 3.07% 5.96%
==============================================================================================================================
==============================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------
1.42% 1.44% 1.42% 1.44% 1.45% 1.48% 1.52% 1.49% 1.49% 1.51%
==============================================================================================================================
1.42% 1.45% 1.43% 1.44% 1.45% 1.50% 1.53% 1.50% 1.49% 1.51%
==============================================================================================================================
3.65% 3.94% 4.34% 4.28% 4.12% 3.83% 3.94% 3.99% 4.18% 4.27%
==============================================================================================================================
==============================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------
$ 19,634 $ 16,040 $ 14,903 $ 15,505 $ 13,375 $ 15,642 $ 13,626 $ 13,260 $ 13,309 $ 9,309
==============================================================================================================================
18.94% 69.66% 30.76% 39.93% 41.39% 30.38% 36.25% 66.08% 34.92% 30.23%
==============================================================================================================================
ANNUAL REPORTS JULY 31, 2006 37
Financial Highlights (concluded) Class I
Merrill Lynch Florida Municipal Bond Fund
------------------------------------------------------------------------
For the Year Ended July 31,
The following per share data and ratios have been derived ------------------------------------------------------------------------
from information provided in the financial statements. 2006 2005 2004 2003 2002
====================================================================================================================================
Per Share Operating Performance
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year .......... $ 10.47 $ 10.15 $ 10.06 $ 10.20 $ 10.14
------------------------------------------------------------------------
Investment income--net ...................... .46+ .49+ .53+ .53+ .52
Realized and unrealized gain (loss)--net .... (.23) .32 .09 (.14) .06
------------------------------------------------------------------------
Total from investment operations ............ .23 .81 .62 .39 .58
------------------------------------------------------------------------
Less dividends and distributions:
Investment income--net ..................... (.42) (.49) (.53) (.53) (.52)
Realized gain--net ......................... -- -- -- -- --
------------------------------------------------------------------------
Total dividends and distributions ........... (.42) (.49) (.53) (.53) (.52)
------------------------------------------------------------------------
Net asset value, end of year ................ $ 10.28 $ 10.47 $ 10.15 $ 10.06 $ 10.20
========================================================================
====================================================================================================================================
Total Investment Return*
- ------------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share .......... 2.60% 8.19% 6.24% 3.87% 5.91%
========================================================================
====================================================================================================================================
Ratios to Average Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement .............. .78% .79% .78% .77% .79%
========================================================================
Expenses .................................... .78% .79% .78% .78% .79%
========================================================================
Investment income--net ...................... 4.40% 4.78% 5.15% 5.18% 5.16%
========================================================================
====================================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) ...... $ 23,603 $ 20,647 $ 19,681 $ 22,053 $ 25,886
========================================================================
Portfolio turnover .......................... 49.85% 54.26% 31.83% 45.50% 41.29%
========================================================================
* Total investment returns exclude the effect of sales charges. Effective
December 28, 2005, Class I Shares are no longer subject to any front-end
sales charge.
+ Based on average shares outstanding.
@ Amount is less than $(.01) per share.
See Notes to Financial Statements.
38 ANNUAL REPORTS JULY 31, 2006
Merrill Lynch New Jersey Municipal Bond Fund Merrill Lynch Pennsylvania Municipal Bond Fund
- ------------------------------------------------------------ -----------------------------------------------------------
For the Year Ended July 31, For the Year Ended July 31,
- ------------------------------------------------------------ -----------------------------------------------------------
2006 2005 2004 2003 2002 2006 2005 2004 2003 2002
==============================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------
$ 10.73 $ 10.24 $ 10.21 $ 10.43 $ 10.48 $ 11.39 $ 11.12 $ 11.03 $ 11.16 $ 10.99
- ------------------------------------------------------------------------------------------------------------------------------
.45+ .48+ .52+ .50+ .49 .50+ .51+ .52+ .54+ .54
(.09) .48 .02 (.21) (.05) (.21) .27 .08 (.13) .17
- ------------------------------------------------------------------------------------------------------------------------------
.36 .96 .54 .29 .44 .29 .78 .60 .41 .71
- ------------------------------------------------------------------------------------------------------------------------------
(.45) (.47) (.51) (.51) (.49) (.50) (.51) (.51) (.54) (.54)
--@ -- -- -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
(.45) (.47) (.51) (.51) (.49) (.50) (.51) (.51) (.54) (.54)
- ------------------------------------------------------------------------------------------------------------------------------
$ 10.64 $ 10.73 $ 10.24 $ 10.21 $ 10.43 $ 11.18 $ 11.39 $ 11.12 $ 11.03 $ 11.16
==============================================================================================================================
==============================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------
3.46% 9.60% 5.35% 2.75% 4.33% 2.59% 7.17% 5.57% 3.69% 6.61%
==============================================================================================================================
==============================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------
.81% .83% .81% .83% .84% .88% .91% .88% .88% .90%
==============================================================================================================================
.82% .84% .82% .83% .84% .89% .92% .89% .89% .90%
==============================================================================================================================
4.26% 4.54% 4.93% 4.88% 4.72% 4.44% 4.55% 4.60% 4.81% 4.88%
==============================================================================================================================
==============================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------
$ 33,316 $ 25,325 $ 15,166 $ 23,582 $ 20,723 $ 11,410 $ 9,939 $ 10,536 $ 11,296 $ 12,104
==============================================================================================================================
18.94% 69.66% 30.76% 39.93% 41.39% 30.38% 36.25% 66.08% 34.92% 30.23%
==============================================================================================================================
ANNUAL REPORTS JULY 31, 2006 39
Notes to Financial Statements
1. Significant Accounting Policies:
Merrill Lynch Florida Municipal Bond Fund, Merrill Lynch New Jersey Municipal
Bond Fund and Merrill Lynch Pennsylvania Municipal Bond Fund (the "Funds" or
individually as the "Fund") are part of Merrill Lynch Multi-State Municipal
Series Trust (the "Trust"). The Funds are registered under the Investment
Company Act of 1940, as amended, as non-diversified, open-end management
investment companies. The Funds' financial statements are prepared in conformity
with U.S. generally accepted accounting principles, which may require the use of
management accruals and estimates. Actual results may differ from these
estimates. Each Fund offers multiple classes of shares. Effective December 28,
2005, Class I Shares are no longer subject to any front-end sales charge. Class
A Shares are sold with a front-end sales charge. Shares of Class B and Class C
may be subject to a contingent deferred sales charge. Class I Shares are sold
only to certain eligible investors. All classes of shares have identical voting,
dividend, liquidation and other rights and the same terms and conditions, except
that Class A, Class B and Class C 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 (except that Class B shareholders may
vote on certain changes to the Class A distribution plan). Income, expenses
(other than expenses attributable to a specific class) and realized and
unrealized gains and losses are allocated daily to each class based on its
relative net assets. The following is a summary of significant accounting
policies followed by the Funds.
(a) Valuation of investments -- Municipal bonds are traded primarily in the
over-the-counter ("OTC") markets and are valued at the last available bid price
in the OTC market or on the basis of values as obtained by a pricing service.
Pricing services use valuation matrixes that incorporate both dealer-supplied
valuations and valuation models. The procedures of the pricing service and its
valuations are reviewed by the officers of the Funds under the general direction
of the Board of Trustees. Such valuations and procedures are reviewed
periodically by the Board of Trustees of the Funds. Financial futures contracts
and options thereon, which are traded on exchanges, are valued at their closing
prices as of the close of such exchanges. Options written or purchased are
valued at the last sale price in the case of exchange-traded options. In the
case of options traded in the OTC market, valuation is the last asked price
(options written) or the last bid price (options purchased). Swap agreements are
valued by quoted fair values received daily by the Funds' pricing service.
Short-term investments with a remaining maturity of 60 days or less are valued
at amortized cost, which approximates market value, under which method the
investment is valued at cost and any premium or discount is amortized on a
straight line basis to maturity. Investments in open-end investment companies
are valued at their net asset value each business day. Securities and other
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 Funds.
(b) Derivative financial instruments -- Each Fund may engage in various
portfolio investment strategies both to increase the return of the Fund and to
hedge, or protect its exposure to interest rate movements and movements in the
securities 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 -- Each Fund may purchase or sell financial
futures contracts and options on such futures contracts. Financial 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.
o Forward interest rate swaps -- Each Fund may enter into forward interest
rate swaps. In a forward interest rate swap, the Fund and the counterparty
agree to pay or receive interest on a specified notional contract amount,
commencing on a specified future effective date, unless terminated
earlier. When the agreement is closed, the Fund records a realized gain or
loss in an amount equal to the value of the agreement.
(c) Income taxes -- It is each 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.
40 ANNUAL REPORTS JULY 31, 2006
Notes to Financial Statements (continued)
(d) Recent accounting pronouncement -- In July 2006, the Financial Accounting
Standards Board ("FASB") issued Interpretation No. 48 ("FIN 48") entitled
"Accounting for Uncertainty in Income Taxes -- an interpretation of FASB
Statement No. 109." FIN 48 prescribes the minimum recognition threshold a tax
position must meet in connection with accounting for uncertainties in income tax
positions taken or expected to be taken by an entity including mutual funds
before being measured and recognized in the financial statements. FIN 48 is
effective for fiscal years beginning after December 15, 2006. The Funds will
adopt FIN 48 during the fiscal 2008 year and the impact on the Funds' financial
statements, if any, is currently being assessed.
(e) Security transactions and investment income -- Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Interest income is recognized on the accrual basis. The Funds amortize all
premiums and discounts on debt securities.
(f) Prepaid registration fees -- Prepaid registration fees are charged to
expense as the related shares are issued.
(g) 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.
(h) Expenses -- Certain expenses have been allocated to the individual funds in
the Trust on a pro rata basis based upon the respective aggregate net asset
value of each fund included in the Trust.
(i) Reclassification -- U.S. generally accepted accounting principles require
that certain components of net assets be adjusted to reflect permanent
differences between financial and tax reporting. Accordingly, during the current
year, with respect to Merrill Lynch New Jersey Municipal Bond Fund, $946 has
been reclassified between undistributed net investment income and accumulated
net realized capital losses as a result of a permanent difference attributable
to amortization methods on fixed income securities. This reclassification has no
effect on net assets or net asset values per share.
2. Investment Advisory Agreement and Transactions with Affiliates:
Each 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. Each 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 Funds' portfolios and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operation of the Funds. For such services, each 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. For the year ended July 31, 2006, the Investment Adviser agreed to
reimburse its management fee by the amount of management fees each Fund pays to
FAM indirectly through its investment described below:
- --------------------------------------------------------------------------------
Investment Reimbursement
- --------------------------------------------------------------------------------
Merrill Lynch Florida CMA Florida Municipal
Municipal Bond Fund Money Fund $1,000
Merrill Lynch Institutional
Tax-Exempt Fund $ 30
- --------------------------------------------------------------------------------
Merrill Lynch New Jersey CMA New Jersey Municipal
Municipal Bond Fund Money Fund $3,541
- --------------------------------------------------------------------------------
Merrill Lynch Pennsylvania CMA Pennsylvania Municipal
Municipal Bond Fund Money Fund $8,517
- --------------------------------------------------------------------------------
Pursuant to the Distribution Plans adopted by each Fund in accordance with Rule
12b-1 under the Investment Company Act of 1940, each 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 A ...................................... .10% --
Class B ...................................... .25% .25%
Class C ...................................... .25% .35%
- --------------------------------------------------------------------------------
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("MLPF&S"), an affiliate of FAM, also provides account
maintenance and distribution services to each Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class A, Class B and Class C 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.
ANNUAL REPORTS JULY 31, 2006 41
Notes to Financial Statements (continued)
For the year ended July 31, 2006, FAMD earned underwriting discounts and MLPF&S
earned dealer concessions on sales of each of the Funds' Class A and Class I
Shares as follows:
- --------------------------------------------------------------------------------
Merrill Lynch Merrill Lynch Merrill Lynch
Florida New Jersey Pennsylvania
Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund
- --------------------------------------------------------------------------------
Class A:
FAMD .................. $ 8,601 $ 1,587 $ 2,808
MLPF&S ................ $54,933 $14,050 $24,140
- --------------------------------------------------------------------------------
Class I:
FAMD .................. $ 2,539 $ 1,417 $ 1,051
MLPF&S ................ $30,919 $12,295 $11,197
- --------------------------------------------------------------------------------
For the year ended July 31, 2006, MLPF&S received contingent deferred sales
charges of each of the Funds' Class B and Class C Shares as follows:
- --------------------------------------------------------------------------------
Merrill Lynch Merrill Lynch Merrill Lynch
Florida New Jersey Pennsylvania
Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund
- --------------------------------------------------------------------------------
Class B: .............. $20,495 $18,540 $ 6,582
Class C: .............. $12,649 $ 916 $ 142
- --------------------------------------------------------------------------------
Furthermore, MLPF&S received contingent deferred sales charges relating to
transactions subject to front-end sales charge waivers in Class A Shares as
follows:
- --------------------------------------------------------------------------------
Merrill Lynch Florida Municipal Bond Fund ...................... $833
Merrill Lynch New Jersey Municipal Bond Fund ................... $ 9
- --------------------------------------------------------------------------------
For the year ended July 31, 2006, the Funds reimbursed FAM for certain
accounting services as follows:
- --------------------------------------------------------------------------------
Reimbursement
- --------------------------------------------------------------------------------
Merrill Lynch Florida Municipal Bond Fund ..................... $2,876
Merrill Lynch New Jersey Municipal Bond Fund .................. $2,259
Merrill Lynch Pennsylvania Municipal Bond Fund ................ $1,596
- --------------------------------------------------------------------------------
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co., is
each Fund's transfer agent.
Certain officers and/or trustees of the Funds are officers and/or directors of
FAM, PSI, FAMD, FDS, and/or ML & Co.
In February 2006, ML & Co. and BlackRock, Inc. entered into an agreement to
contribute ML & Co.'s investment management business, including FAM, to the
investment management business of BlackRock, Inc. The transaction is expected to
close around the end of the third quarter of 2006.
On July 31, 2006 (for Merrill Lynch New Jersey Municipal Bond Fund and Merrill
Lynch Pennsylvania Municipal Bond Fund) and August 31, 2006 (for Merrill Lynch
Florida Municipal Bond Fund), shareholders of each Fund approved a new
Investment Advisory Agreement with BlackRock Advisors, Inc., a subsidiary of
BlackRock, Inc., as well as a contingent sub-advisory agreement with BlackRock
Advisors, Inc. The new advisory agreement will become effective upon the closing
of the BlackRock transaction described above and the investment advisory fee
will be unchanged.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended July 31, 2006 were as follows:
- --------------------------------------------------------------------------------
Purchases Sales
- --------------------------------------------------------------------------------
Merrill Lynch Florida Municipal
Bond Fund .............................. $63,819,534 $68,473,350
Merrill Lynch New Jersey Municipal
Bond Fund .............................. $26,677,311 $19,780,732
Merrill Lynch Pennsylvania Municipal
Bond Fund .............................. $23,413,462 $21,351,720
- --------------------------------------------------------------------------------
4. Beneficial Interest Transactions:
Net increase (decrease) in net assets derived from beneficial interest
transactions were as follows:
- --------------------------------------------------------------------------------
For the Year For the Year
Ended Ended
July 31, July 31,
2006 2005
- --------------------------------------------------------------------------------
Merrill Lynch Florida Municipal
Bond Fund ............................ $ (3,569,331) $ (4,460,831)
Merrill Lynch New Jersey Municipal
Bond Fund ............................ $ 12,420,544 $ 3,429,108
Merrill Lynch Pennsylvania Municipal
Bond Fund ............................ $ 244,580 $ (6,288,632)
- --------------------------------------------------------------------------------
Transactions in shares of beneficial interest for each class were as follows:
- -------------------------------------------------------------------------------
Merrill Lynch Florida Municipal Bond Fund
- -------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended July 31, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 527,848 $ 5,463,162
Automatic conversion of shares ........... 243,585 2,516,457
Shares issued to shareholders in
reinvestment of dividends .............. 91,450 945,045
-------------------------------
Total issued ............................. 862,883 8,924,664
Shares redeemed .......................... (796,776) (8,221,713)
-------------------------------
Net increase ............................. 66,107 $ 702,951
===============================
- -------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended July 31, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 853,541 $ 8,841,929
Automatic conversion of shares ........... 229,334 2,370,126
Shares issued to shareholders in
reinvestment of dividends .............. 97,373 1,008,003
-------------------------------
Total issued ............................. 1,180,248 12,220,058
Shares redeemed .......................... (1,152,029) (11,915,967)
-------------------------------
Net increase ............................. 28,219 $ 304,091
===============================
42 ANNUAL REPORTS JULY 31, 2006
Notes to Financial Statements (continued)
- -------------------------------------------------------------------------------
Merrill Lynch Florida Municipal Bond Fund (continued)
- -------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended July 31, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 57,971 $ 601,017
Shares issued to shareholders in
reinvestment of dividends .............. 33,304 344,967
-------------------------------
Total issued ............................. 91,275 945,984
-------------------------------
Automatic conversion of shares ........... (243,160) (2,516,457)
Shares redeemed .......................... (733,191) (7,590,028)
-------------------------------
Total redeemed ........................... (976,351) (10,106,485)
-------------------------------
Net decrease ............................. (885,076) $ (9,160,501)
===============================
- -------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended July 31, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 94,359 $ 976,357
Shares issued to shareholders in
reinvestment of dividends .............. 49,607 514,120
-------------------------------
Total issued ............................. 143,966 1,490,477
-------------------------------
Automatic conversion of shares ........... (228,947) (2,370,126)
Shares redeemed .......................... (645,659) (6,679,715)
-------------------------------
Total redeemed ........................... (874,606) (9,049,841)
-------------------------------
Net decrease ............................. (730,640) $ (7,559,364)
===============================
- -------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended July 31, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 573,431 $ 5,936,278
Shares issued to shareholders in
reinvestment of dividends .............. 25,304 261,367
-------------------------------
Total issued ............................. 598,735 6,197,645
Shares redeemed .......................... (449,648) (4,645,872)
-------------------------------
Net increase ............................. 149,087 $ 1,551,773
===============================
- -------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended July 31, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 529,289 $ 5,500,348
Shares issued to shareholders in
reinvestment of dividends .............. 21,406 221,728
-------------------------------
Total issued ............................. 550,695 5,722,076
Shares redeemed .......................... (317,402) (3,288,227)
-------------------------------
Net increase ............................. 233,293 $ 2,433,849
===============================
- -------------------------------------------------------------------------------
Class I Shares for the Year Dollar
Ended July 31, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 795,565 $ 8,233,760
Shares issued to shareholders in
reinvestment of dividends .............. 34,571 357,839
-------------------------------
Total issued ............................. 830,136 8,591,599
Shares redeemed .......................... (507,208) (5,255,153)
-------------------------------
Net increase ............................. 322,928 $ 3,336,446
===============================
- -------------------------------------------------------------------------------
Class I Shares for the Year Dollar
Ended July 31, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 280,520 $ 2,901,857
Shares issued to shareholders in
reinvestment of dividends .............. 38,167 395,769
-------------------------------
Total issued ............................. 318,687 3,297,626
Shares redeemed .......................... (284,189) (2,937,033)
-------------------------------
Net increase ............................. 34,498 $ 360,593
===============================
- -------------------------------------------------------------------------------
Merrill Lynch New Jersey Municipal Bond Fund
- -------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended July 31, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 208,943 $ 2,220,603
Automatic conversion of shares ........... 143,613 1,527,300
Shares issued resulting from
reorganization ......................... 563,945 5,972,178
Shares issued to shareholders in
reinvestment of dividends and
distributions .......................... 74,164 788,558
-------------------------------
Total issued ............................. 990,665 10,508,639
Shares redeemed .......................... (398,716) (4,231,990)
-------------------------------
Net increase ............................. 591,949 $ 6,276,649
===============================
- -------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended July 31, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 110,260 $ 1,168,660
Automatic conversion of shares ........... 209,325 2,210,673
Shares issued to shareholders in
reinvestment of dividends .............. 74,157 783,996
-------------------------------
Total issued ............................. 393,742 4,163,329
Shares redeemed .......................... (376,540) (3,979,586)
-------------------------------
Net increase ............................. 17,202 $ 183,743
===============================
- -------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended July 31, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 75,601 $ 803,353
Shares issued to shareholders in
reinvestment of dividends and
distributions .......................... 36,197 384,750
-------------------------------
Total issued ............................. 111,798 1,188,103
-------------------------------
Automatic conversion of shares ........... (143,732) (1,527,300)
Shares redeemed .......................... (509,703) (5,409,374)
-------------------------------
Total redeemed ........................... (653,435) (6,936,674)
-------------------------------
Net decrease ............................. (541,637) $ (5,748,571)
===============================
ANNUAL REPORTS JULY 31, 2006 43
Notes to Financial Statements (continued)
- -------------------------------------------------------------------------------
Merrill Lynch New Jersey Municipal Bond Fund (concluded)
- -------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended July 31, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 132,994 $ 1,398,646
Shares issued to shareholders in
reinvestment of dividends .............. 50,657 534,714
-------------------------------
Total issued ............................. 183,651 1,933,360
-------------------------------
Automatic conversion of shares ........... (209,415) (2,210,673)
Shares redeemed .......................... (571,445) (6,060,405)
-------------------------------
Total redeemed ........................... (780,860) (8,271,078)
-------------------------------
Net decrease ............................. (597,209) $ (6,337,718)
===============================
- -------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended July 31, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 486,689 $ 5,166,459
Shares issued to shareholders in
reinvestment of dividends and
distributions .......................... 31,114 330,567
-------------------------------
Total issued ............................. 517,803 5,497,026
Shares redeemed .......................... (168,574) (1,794,645)
-------------------------------
Net increase ............................. 349,229 $ 3,702,381
===============================
- -------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended July 31, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 236,223 $ 2,498,568
Shares issued to shareholders in
reinvestment of dividends .............. 28,197 297,822
-------------------------------
Total issued ............................. 264,420 2,796,390
Shares redeemed .......................... (224,867) (2,374,940)
-------------------------------
Net increase ............................. 39,553 $ 421,450
===============================
- -------------------------------------------------------------------------------
Class I Shares for the Year Dollar
Ended July 31, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 964,976 $ 10,272,414
Shares issued to shareholders in
reinvestment of dividends and
distributions .......................... 34,893 370,812
-------------------------------
Total issued ............................. 999,869 10,643,226
Shares redeemed .......................... (230,789) (2,453,141)
-------------------------------
Net increase ............................. 769,080 $ 8,190,085
===============================
- -------------------------------------------------------------------------------
Class I Shares for the Year Dollar
Ended July 31, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 1,133,504 $ 11,842,792
Shares issued to shareholders in
reinvestment of dividends .............. 35,848 378,574
-------------------------------
Total issued ............................. 1,169,352 12,221,366
Shares redeemed .......................... (289,843) (3,059,733)
-------------------------------
Net increase ............................. 879,509 $ 9,161,633
===============================
- -------------------------------------------------------------------------------
Merrill Lynch Pennsylvania Municipal Bond Fund
- -------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended July 31, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 186,476 $ 2,100,586
Automatic conversion of shares ........... 175,276 1,971,520
Shares issued to shareholders in
reinvestment of dividends .............. 53,112 598,166
-------------------------------
Total issued ............................. 414,864 4,670,272
Shares redeemed .......................... (286,415) (3,220,475)
-------------------------------
Net increase ............................. 128,449 $ 1,449,797
===============================
- -------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended July 31, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 111,903 $ 1,274,747
Automatic conversion of shares ........... 189,494 2,148,323
Shares issued to shareholders in
reinvestment of dividends .............. 50,337 571,748
-------------------------------
Total issued ............................. 351,734 3,994,818
Shares redeemed .......................... (354,711) (4,024,918)
-------------------------------
Net decrease ............................. (2,977) $ (30,100)
===============================
- -------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended July 31, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 22,583 $ 256,222
Shares issued to shareholders in
reinvestment of dividends .............. 37,037 416,986
-------------------------------
Total issued ............................. 59,620 673,208
-------------------------------
Automatic conversion of shares ........... (175,472) (1,971,520)
Shares redeemed .......................... (342,329) (3,848,140)
-------------------------------
Total redeemed ........................... (517,801) (5,819,660)
-------------------------------
Net decrease ............................. (458,181) $ (5,146,452)
===============================
- -------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended July 31, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 75,859 $ 864,464
Shares issued to shareholders in
reinvestment of dividends .............. 47,174 535,066
-------------------------------
Total issued ............................. 123,033 1,399,530
-------------------------------
Automatic conversion of shares ........... (189,706) (2,148,323)
Shares redeemed .......................... (415,338) (4,706,022)
-------------------------------
Total redeemed ........................... (605,044) (6,854,345)
-------------------------------
Net decrease ............................. (482,011) $ (5,454,815)
===============================
- -------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended July 31, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 271,153 $ 3,052,105
Shares issued to shareholders in
reinvestment of dividends .............. 28,373 319,214
-------------------------------
Total issued ............................. 299,526 3,371,319
Shares redeemed .......................... (97,038) (1,091,005)
-------------------------------
Net increase ............................. 202,488 $ 2,280,314
===============================
44 ANNUAL REPORTS JULY 31, 2006
Notes to Financial Statements (continued)
- -------------------------------------------------------------------------------
Merrill Lynch Pennsylvania Municipal Bond Fund (concluded)
- -------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended July 31, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 157,442 $ 1,789,381
Shares issued to shareholders in
reinvestment of dividends .............. 27,240 309,029
-------------------------------
Total issued ............................. 184,682 2,098,410
Shares redeemed .......................... (181,224) (2,057,437)
-------------------------------
Net increase ............................. 3,458 $ 40,973
===============================
- -------------------------------------------------------------------------------
Class I Shares for the Year Dollar
Ended July 31, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 258,690 $ 2,907,065
Shares issued to shareholders in
reinvestment of dividends .............. 19,170 215,636
-------------------------------
Total issued ............................. 277,860 3,122,701
Shares redeemed .......................... (130,146) (1,461,780)
-------------------------------
Net increase ............................. 147,714 $ 1,660,921
===============================
- -------------------------------------------------------------------------------
Class I Shares for the Year Dollar
Ended July 31, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 112,623 $ 1,276,736
Shares issued to shareholders in
reinvestment of dividends .............. 19,901 225,744
-------------------------------
Total issued ............................. 132,524 1,502,480
Shares redeemed .......................... (207,663) (2,347,170)
-------------------------------
Net decrease ............................. (75,139) $ (844,690)
===============================
5. Short-Term Borrowings:
The Trust, on behalf of the Funds, along with certain other funds managed by FAM
and its affiliates, is a party to a $500,000,000 credit agreement with a group
of lenders, which expires November 2006. The Funds may borrow under the credit
agreement to fund shareholder redemptions and for other lawful purposes other
than for leverage. The Funds may borrow up to the maximum amount allowable under
the Funds' current prospectus and statement of additional information, subject
to various other legal, regulatory or contractual limits. The Funds pay a
commitment fee of .07% per annum based on the Funds' pro rata share of the
unused portion of the credit agreement. Amounts borrowed under the credit
agreement bear interest at a rate equal to, at the Funds' election, the federal
funds rate plus .50% or a base rate as defined in the credit agreement. The
Funds did not borrow under the credit agreement during the year ended July 31,
2006.
6. Distributions to Shareholders:
Merrill Lynch Florida Municipal Bond Fund
The tax character of distributions paid during the fiscal years ended July 31,
2006 and July 31, 2005 was as follows:
- --------------------------------------------------------------------------------
7/31/2006 7/31/2005
- --------------------------------------------------------------------------------
Distributions paid from:
Tax-exempt income .................... $5,414,484 $5,978,212
------------------------------
Total distributions .................... $5,414,484 $5,978,212
- --------------------------------------------------------------------------------
As of July 31, 2006, the components of accumulated losses on a tax basis were as
follows:
- -----------------------------------------------------------------------------
Undistributed tax-exempt income--net .................... $ 123,585
Undistributed long-term capital gains--net .............. --
-----------
Total undistributed earnings--net ....................... 123,585
Capital loss carryforward ............................... (4,321,436)*
Unrealized gains--net ................................... 3,389,753**
-----------
Total accumulated losses--net ........................... $ (808,098)
===========
* On July 31, 2006, the Fund had a net capital loss carryforward of
$4,321,436, of which $3,155,081 expires in 2008, $1,118,328 expires in
2009 and $48,027 expires in 2014. This amount will be available to offset
like amounts of any future taxable gains.
** The difference between book-basis and tax-basis net unrealized gains is
attributable primarily to the tax deferral of losses on wash sales, the
tax deferral of losses on straddles and the deferral of post-October
capital losses for tax purposes.
Merrill Lynch New Jersey Municipal Bond Fund
The tax character of distributions paid during the fiscal years ended July 31,
2006 and July 31, 2005 was as follows:
- --------------------------------------------------------------------------------
7/31/2006 7/31/2005
- --------------------------------------------------------------------------------
Distributions paid from:
Tax-exempt income .................... $4,195,562 $4,337,482
Ordinary income ...................... 36,642 --
------------------------------
Total distributions .................... $4,232,204 $4,337,482
- --------------------------------------------------------------------------------
ANNUAL REPORTS JULY 31, 2006 45
Notes to Financial Statements (concluded)
As of July 31, 2006, the components of accumulated losses on a tax basis were as
follows:
- -----------------------------------------------------------------------------
Undistributed tax-exempt income--net .................... $ 94,196
Undistributed long-term capital gains--net .............. --
-----------
Total undistributed earnings--net ....................... 94,196
Capital loss carryforward ............................... (6,886,005)*
Unrealized gains--net ................................... 5,106,698**
-----------
Total accumulated losses--net ........................... $(1,685,111)
===========
* On July 31, 2006, the Fund had a net capital loss carryforward of
$6,886,005, of which $5,075,643 expires in 2009 and $1,810,362 expires in
2011. This amount will be available to offset like amounts of any future
taxable gains.
** The difference between book-basis and tax-basis net unrealized gains is
attributable primarily to the tax deferral of losses on straddles and the
difference between book and tax amortization methods for premiums and
discounts on fixed income securities.
Merrill Lynch Pennsylvania Municipal Bond Fund
The tax character of distributions paid during the fiscal years ended July 31,
2006 and July 31, 2005 was as follows:
- --------------------------------------------------------------------------------
7/31/2006 7/31/2005
- --------------------------------------------------------------------------------
Distributions paid from:
Tax-exempt income .................... $2,993,729 $3,184,620
------------------------------
Total distributions .................... $2,993,729 $3,184,620
- --------------------------------------------------------------------------------
As of July 31, 2006, the components of accumulated earnings on a tax basis were
as follows:
- -----------------------------------------------------------------------------
Undistributed tax-exempt income--net .................... $ 59,861
Undistributed long-term capital gains--net .............. --
-----------
Total undistributed earnings--net ....................... 59,861
Capital loss carryforward ............................... (129,854)*
Unrealized gains--net ................................... 3,121,421**
-----------
Total accumulated earnings--net ......................... $ 3,051,428
===========
* On July 31, 2006, the Fund had a net capital loss carryforward of
$129,854, all of which expires in 2009. This amount will be available to
offset like amounts of any future taxable gains.
** The difference between book-basis and tax-basis net unrealized gains is
attributable primarily to the tax deferral of losses on straddles and the
difference between book and tax amortization methods for premiums and
discounts on fixed income securities.
7. Acquisition of Lebenthal New Jersey Municipal Bond Fund:
On May 1, 2006, Merrill Lynch New Jersey Municipal Bond Fund acquired
substantially all of the assets and assumed substantially all of the liabilities
of Lebenthal New Jersey Municipal Bond Fund pursuant to a plan of
reorganization. The acquisition was accomplished by a tax-free exchange of
872,704 shares of Common Stock of Lebenthal New Jersey Municipal Bond Fund for
563,945 shares of Common Stock of Merrill Lynch New Jersey Municipal Bond Fund.
Lebenthal New Jersey Municipal Bond Fund's net assets on that date of
$5,972,178, including $190,617 of net unrealized appreciation, were combined
with those of Merrill Lynch New Jersey Municipal Bond Fund. The aggregate net
assets immediately after the acquisition amounted to $108,055,259.
8. Plan of Reorganization:
On May 9, 2006, the Board of Trustees for Merrill Lynch New Jersey Municipal
Bond Fund approved a plan of reorganization, subject to shareholder approval and
certain other conditions, whereby Merrill Lynch New Jersey Municipal Bond Fund
will acquire substantially all of the assets and assume substantially all of the
liabilities of BlackRock New Jersey Tax-Free Income Portfolio in exchange for
newly issued shares of Merrill Lynch New Jersey Municipal Bond Fund.
On May 9, 2006, the Board of Trustees for Merrill Lynch Pennsylvania Municipal
Bond Fund approved a plan of reorganization, subject to shareholder approval and
certain other conditions, whereby Merrill Lynch Pennsylvania Municipal Bond Fund
will acquire substantially all of the assets and assume substantially all of the
liabilities of BlackRock Pennsylvania Tax-Free Income Portfolio in exchange for
newly issued shares of Merrill Lynch Pennsylvania Municipal Bond Fund.
46 ANNUAL REPORTS JULY 31, 2006
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Trustees of Merrill Lynch Multi-State Municipal
Series Trust:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of Merrill Lynch Florida Municipal Bond Fund,
Merrill Lynch New Jersey Municipal Bond Fund and Merrill Lynch Pennsylvania
Municipal Bond Fund, three of the portfolios constituting Merrill Lynch
Multi-State Municipal Series Trust (the "Trust"), as of July 31, 2006, and the
related statements of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Trust
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Trust's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of July 31, 2006, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the respective financial
positions of Merrill Lynch Florida Municipal Bond Fund, Merrill Lynch New Jersey
Municipal Bond Fund and Merrill Lynch Pennsylvania Municipal Bond Fund as of
July 31, 2006, the results of their operations for the year then ended, the
changes in their net assets for each of the two years in the period then ended,
and their financial highlights for each of the five years in the period then
ended, in conformity with U.S. generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
September 20, 2006
Important Tax Information (unaudited)
All of the net investment income distributions paid monthly by Merrill Lynch
Florida Municipal Bond Fund, Merrill Lynch New Jersey Municipal Bond Fund and
Merrill Lynch Pennsylvania Municipal Bond Fund of Merrill Lynch Multi-State
Municipal Series Trust during the taxable year ended July 31, 2006 qualify as
tax-exempt interest dividends for federal income tax purposes.
ANNUAL REPORTS JULY 31, 2006 47
Disclosure of Investment Advisory Agreement
Activities and Composition of the Board of Trustees
All but one member of the Board of Trustees is an independent trustee whose only
association with Fund Asset Management, L.P. (the "Investment Adviser") or other
Merrill Lynch affiliates is as a trustee of each Fund and as a trustee or
director of certain other funds advised by the Investment Adviser or its
affiliates. The co-chairmen of the Board are also independent trustees. New
trustee nominees are chosen by a Nominating Committee comprised of independent
trustees. All independent trustees also are members of the Board's Audit
Committee, and the independent trustees meet in executive session at each
in-person Board meeting. The Board and the Audit Committee meet in person for at
least two days each quarter and conduct other in-person and telephone meetings
throughout the year, some of which are formal Board meetings and some of which
are informational meetings. The independent counsel to the independent trustees
attends all in-person Board and Audit Committee meetings and other meetings at
the independent trustees' request.
Investment Advisory Agreement -- Matters Considered by the Board
Every year, the Board considers approval of each Fund's investment advisory
agreement (each, an "Investment Advisory Agreement"). The Board assesses the
nature, scope and quality of the services provided to each Fund by the personnel
of the Investment Adviser and its affiliates, including administrative services,
shareholder services, oversight of fund accounting, marketing services and
assistance in meeting legal and regulatory requirements. The Board also receives
and assesses information regarding the services provided to each Fund by certain
unaffiliated service providers.
At various times throughout the year, the Board also considers a range of
information in connection with its oversight of the services provided by the
Investment Adviser and its affiliates. Among the matters considered are: (a)
fees (in addition to management fees) paid to the Investment Adviser and its
affiliates by each Fund, such as transfer agency fees and fees for marketing and
distribution; (b) Fund operating expenses paid to third parties; (c) the
resources devoted to and compliance reports relating to each Fund's investment
objective, policies and restrictions, and its compliance with its Code of Ethics
and compliance policies and procedures; and (d) the nature, cost and character
of non-investment management services provided by the Investment Adviser and its
affiliates.
The Board believes that the Investment Adviser is one of the most experienced
global asset management firms and considers the overall services provided by the
Investment Adviser to be of high quality. The Board also believes that the
Investment Adviser is financially sound and well managed and notes that the
Investment Adviser is affiliated with one of America's largest financial firms.
The Board works closely with the Investment Adviser in overseeing the Investment
Adviser's efforts to achieve good performance. As part of this effort, the Board
discusses portfolio manager effectiveness and, when performance is not
satisfactory, discusses with the Investment Adviser taking steps such as
changing investment personnel.
Annual Consideration of Approval by the Board of Trustees
In the period prior to the Board meeting to consider renewal of each Investment
Advisory Agreement, the Board requests and receives materials specifically
relating to each Fund's Investment Advisory Agreement. These materials are
prepared separately with respect to each Fund and include (a) information
compiled by Lipper Inc. ("Lipper") on the fees and expenses and the investment
performance of the Fund as compared to a comparable group of funds as classified
by Lipper; (b) sales and redemption data for the Fund; (c) a discussion by the
Fund's portfolio management team regarding investment strategies used by the
Fund during its most recent fiscal year; and (d) information on the
profitability to the Investment Adviser and its affiliates of the Investment
Advisory Agreement, and other relationships with the Fund. The Board also
considers other matters it deems important to the approval process, such as
payments made to the Investment Adviser or its affiliates relating to the
distribution of Fund shares, services related to the valuation and pricing of
Fund portfolio holdings, allocation of Fund brokerage fees, each Fund's
portfolio turnover statistics, and direct and indirect benefits to the
Investment Adviser and its affiliates from their relationship with each Fund.
Certain Specific Renewal Data
In connection with the most recent renewal of each Fund's Investment Advisory
Agreement in February 2006, the independent trustees' and Board's review
included the following:
Services Provided by the Investment Adviser -- The Board reviewed the nature,
extent and quality of services provided by the Investment Adviser, focusing on
the investment advisory services and the resulting performance of each Fund. The
Board uses data provided by Lipper and by management in its review of advisory
services. The Board compared Fund performance -- both including and excluding
the effects of the Fund's fees and expenses -- to the performance of a
48 ANNUAL REPORTS JULY 31, 2006
comparable group of mutual funds and the performance of a relevant index or
combination of indexes. While the Board reviews performance data at least
quarterly, the Board attaches more importance to performance over relatively
long periods of time, typically three to five years. The Board concluded that
the comparative data indicated that each Fund's performance was competitive.
Considering all these factors, the Board concluded that each Fund's performance
and the nature and quality of the services provided supported the continuation
of its Investment Advisory Agreement.
The Investment Adviser's Personnel and Investment Process -- The Board reviewed
each Fund's investment objectives and strategies. The Board discusses with
senior management of the Investment Adviser responsible for investment
operations and the senior management of the Investment Adviser's municipal
investing group the strategies being used to achieve the stated objectives.
Among other things, the Board considers the size, education and experience of
the Investment Adviser's investment staff, its use of technology, and the
Investment Adviser's approach to training and retaining portfolio managers and
other research, advisory and management personnel. The Board also reviews the
Investment Adviser's compensation policies and practices with respect to each
Fund's portfolio managers. The Board also considered the experience of each
Fund's portfolio managers and noted that Mr. Sneeden, who is the portfolio
manager of Merrill Lynch Florida Municipal Bond Fund, has more than 21 years
experience in portfolio management. Mr. Jaeckel, who is the portfolio manager of
Merrill Lynch New Jersey Municipal Bond Fund, has more than 15 years experience
in portfolio management. Mr. Bock, who is the portfolio manager of Merrill Lynch
Pennsylvania Municipal Bond Fund, has more than 16 years experience in portfolio
management. The Board concluded that the Investment Adviser and its investment
staff have extensive experience in analyzing and managing the types of
investments used by each Fund and that each Fund benefits from that experience.
Management Fees and Other Expenses -- The Board reviews each Fund's contractual
management fee rate and actual management fee rate as a percentage of total
assets at common asset levels -- the actual rate includes advisory and
administrative service fees and the effects of any fee waivers -- compared to
the other funds in its Lipper category. It also compares the Fund's total
expenses to those of other comparable funds. The Board determined that each
Fund's contractual and actual management fee rates, as well as total expenses,
were competitive with those of comparable funds. The Board concluded that each
Fund's management fee rate and overall expense ratio are reasonable.
Profitability -- The Board considers the cost of the services provided to each
Fund by the Investment Adviser and the Investment Adviser's and its affiliates'
profits relating to the management and distribution of each Fund and the
MLIM/FAM-advised funds. As part of its analysis, the Board reviewed the
Investment Adviser's methodology in allocating its costs to the management of
each Fund and concluded that there was a reasonable basis for the allocation.
The Board concluded that the profits of the Investment Adviser and its
affiliates are acceptable in relation to the nature and quality of services
provided.
Economies of Scale -- The Board considered the extent to which economies of
scale might be realized as the assets of each Fund increase and whether there
should be changes in the management fee rate or structure in order to enable
each Fund to participate in these economies of scale. The Board noted that each
Fund had established breakpoints to participate in economies of scale and
concluded that each Fund was realizing an appropriate level of economies of
scale. The Board determined that the management fee structure was reasonable and
that no changes were currently necessary.
Conclusion
After the independent trustees deliberated in executive session, the entire
Board, including all of the independent trustees, approved the renewal of each
existing Investment Advisory Agreement, concluding that the advisory fee was
reasonable in relation to the services provided and that a contract renewal was
in the best interests of the shareholders.
ANNUAL REPORTS JULY 31, 2006 49
Disclosure of New Investment Advisory Agreement
New BlackRock Investment Advisory Agreements -- Matters Considered by the Board
In connection with the Transaction between Merrill Lynch and BlackRock, the
Board of Trustees considered a new investment advisory agreement (each a "New
Investment Advisory Agreement") between each Fund and BlackRock Advisors, Inc.
or its successor ("BlackRock Advisors"). Each Fund's New Investment Advisory
Agreement has been approved by the Fund's shareholders and is expected to become
effective upon the closing of the Transaction in the third quarter of 2006.
The Board discussed the New Investment Advisory Agreements at telephonic and
in-person meetings held during April and May 2006. The Board, including the
independent trustees, approved the New Investment Advisory Agreements at a
meeting held on May 9, 2006. The Board also approved the issuance of new classes
of shares of each Fund and new distribution arrangements with respect to these
new share classes, including higher distribution fees for certain new share
classes, to take effect after the closing of the Transaction. The Board also
approved revised front-end sales charge schedules with respect to certain
classes of shares of the Funds.
To assist the Board in its consideration of the New Investment Advisory
Agreements, BlackRock provided materials and information about BlackRock,
including its financial condition and asset management capabilities and
organization, and Merrill Lynch provided materials and information about the
Transaction. The independent trustees, through their independent legal counsel,
also requested and received additional information from Merrill Lynch and
BlackRock in connection with their consideration of the New Investment Advisory
Agreements. The additional information was provided in advance of the May 9,
2006 meeting. In addition, the independent trustees consulted with their counsel
and the Funds' counsel on numerous occasions, discussing, among other things,
the legal standards and certain other considerations relevant to the trustees'
deliberations.
At the Board meetings, the trustees discussed with Merrill Lynch management and
certain BlackRock representatives the Transaction, its strategic rationale and
BlackRock's general plans and intentions regarding the Funds. At these Board
meetings, representatives of Merrill Lynch and BlackRock made presentations to
and responded to questions from the Board. The trustees also inquired about the
plans for and anticipated roles and responsibilities of certain employees and
officers of the Investment Adviser and certain affiliates being transferred to
BlackRock in connection with the Transaction. The independent trustees of the
Board also conferred separately and with their counsel about the Transaction and
other matters related to the Transaction on a number of occasions, including in
connection with the April and May 2006 meetings. Among other things, the
independent trustees conferred about proposed reorganizations in which (i)
Merrill Lynch New Jersey Municipal Bond Fund would acquire the assets and
liabilities of BlackRock New Jersey Tax-Free Income Portfolio, a portfolio of
BlackRock FundsSM, and (ii) Merrill Lynch Pennsylvania Municipal Bond Fund would
acquire the assets and liabilities of BlackRock Pennsylvania Tax-Free Income
Portfolio, another portfolio of BlackRock Funds. After the presentations and
after reviewing the written materials provided, the independent trustees met in
executive sessions with their counsel to consider the New Investment Advisory
Agreements.
In connection with the Board's review of the New Investment Advisory Agreements,
Merrill Lynch and/or BlackRock advised the trustees about a variety of matters.
The advice included the following, among other matters:
o that there is not expected to be any diminution in the nature, quality and
extent of services provided to the Funds and their shareholders by
BlackRock Advisors, including compliance services;
o that operation of New BlackRock as an independent investment management
firm will enhance its ability to attract and retain talented
professionals;
o that the Funds should benefit from having access to BlackRock's state of
the art technology and risk management analytic tools, including
investment tools, provided under the BlackRock Solutions(R) brand name;
o that BlackRock has no present intention to alter any applicable expense
waivers or reimbursements currently in effect and, while it reserves the
right to do so in the future, it would seek the approval of the Board
before making any changes;
o that BlackRock and Merrill Lynch will enter into an agreement, for an
initial three-year period and automatically renewable from year to year
thereafter, in connection with the Transaction under which Merrill
Lynch-affiliated broker-dealers will continue to offer the Funds as
investment products;
50 ANNUAL REPORTS JULY 31, 2006
o that BlackRock Advisors will have substantially the same access to the
Merrill Lynch sales force when distributing shares of the Funds as is
currently provided to the Investment Adviser and that other arrangements
between the Investment Adviser and Merrill Lynch sales channels will be
preserved;
o that the Funds will have access to BlackRock's network of third party
brokers, retirement plan platforms and registered investment advisers;
o that in connection with the Transaction, Merrill Lynch and BlackRock have
agreed to conduct, and use reasonable best efforts to cause their
respective affiliates to conduct, their respective businesses in
compliance with the conditions of Section 15(f) of the Investment Company
Act of 1940 (the "1940 Act") in relation to any public funds advised by
BlackRock or the Investment Adviser (or its affiliates), respectively; and
o that Merrill Lynch and BlackRock would derive benefits from the
Transaction and that, as a result, they have a different financial
interest in the matters that were being considered than do Fund
shareholders.
The trustees considered the information provided by Merrill Lynch and BlackRock
above, and, among other factors, the following:
o the potential benefits to Fund shareholders from being part of a combined
fund family with BlackRock- sponsored funds, including possible economies
of scale and access to investment opportunities;
o the potential for expanding distribution of Fund shares through improved
access to third party distribution;
o the reputation, financial strength and resources of BlackRock and its
investment advisory subsidiaries and the anticipated financial strength
and resources of New BlackRock;
o the compliance policies and procedures of BlackRock Advisors;
o the terms and conditions of the New Investment Advisory Agreements,
including the fact that for each Fund, the schedule of total advisory fees
will not increase by virtue of its New Investment Advisory Agreement, but
will remain the same;
o that in February 2006, the Board performed a full annual review of the
investment advisory agreement currently in effect for each Fund (each a
"Current Investment Advisory Agreement") as required by the 1940 Act and
has determined that the Investment Adviser has the capabilities, resources
and personnel necessary to provide the advisory and administrative
services currently provided to the Fund; and that the advisory and/or
management fees paid by each Fund, taking into account any applicable
agreed-upon fee waivers and breakpoints, represent reasonable compensation
to the Investment Adviser in light of the services provided, the costs to
the Investment Adviser of providing those services, economies of scale,
the fees and other expenses paid by similar funds (including information
provided by Lipper Inc. ["Lipper"]), and such other matters as the
trustees have considered relevant in the exercise of their reasonable
judgment; and
o that Merrill Lynch agreed to pay all expenses of the Funds in connection
with the Board's consideration of the New Investment Advisory Agreements
and related agreements and all costs of shareholder approval of the New
Investment Advisory Agreements and as a result the Funds would bear no
costs in obtaining shareholder approval of the New Investment Advisory
Agreements.
Certain of these considerations are discussed in more detail below.
In its review of each New Investment Advisory Agreement, the Board assessed the
nature, scope and quality of the services to be provided to the applicable Fund
by the personnel of BlackRock Advisors and its affiliates, including
administrative services, shareholder services, oversight of fund accounting,
marketing services and assistance in meeting legal and regulatory requirements.
In its review of each New Investment Advisory Agreement, the Board also
considered a range of information in connection with its oversight of the
services to be provided by BlackRock Advisors and its affiliates. Among the
matters considered for each Fund were: (a) fees (in addition to management fees)
to be paid to BlackRock Advisors and its affiliates by the Fund; (b) Fund
operating expenses paid to third parties; (c) the resources devoted to and
compliance reports relating to the Fund's investment objective, policies and
restrictions, and its compliance with its Code of Ethics and BlackRock Advisors'
compliance policies and procedures; and (d) the nature, cost and character of
non-investment management services to be provided by BlackRock Advisors and its
affiliates.
ANNUAL REPORTS JULY 31, 2006 51
Disclosure of New Investment Advisory Agreement (continued)
In the period prior to the Board meetings to consider the renewal of each Fund's
Current Investment Advisory Agreement, the Board had requested and received
materials specifically relating to the Fund's Current Investment Advisory
Agreement. For each Fund, these materials included (a) information compiled by
Lipper on the fees and expenses and the investment performance of the Fund as
compared to a comparable group of funds as classified by Lipper; (b) a
discussion by the Fund's portfolio management team on investment strategies used
by the Fund during its most recent fiscal year; (c) information on the
profitability to the Investment Adviser of the Fund's Current Investment
Advisory Agreement and other payments received by the Investment Adviser and its
affiliates from the Fund; and (d) information provided by the Investment Adviser
concerning services related to the valuation and pricing of portfolio holdings,
the Fund's portfolio turnover statistics and direct and indirect benefits to the
Investment Adviser and its affiliates from their relationship with the Fund.
In their deliberations, the trustees considered information received in
connection with their most recent continuation of each Current Investment
Advisory Agreement, in addition to information provided by BlackRock and
BlackRock Advisors in connection with their evaluation of the terms and
conditions of the New Investment Advisory Agreement. The trustees did not
identify any particular information that was all-important or controlling. The
trustees evaluated all information available to them on a fund by fund basis,
and their determinations were made separately in respect of each Fund. The
trustees, including a majority of the independent trustees, concluded that the
terms of each Fund's New Investment Advisory Agreement are appropriate, that the
fees to be paid are reasonable in light of the services to be provided to the
Fund, and that the New Investment Advisory Agreement should be approved and
recommended to Fund shareholders.
Nature, Quality and Extent of Services Provided -- The Board reviewed the
nature, extent and quality of services provided by the Investment Adviser,
including the investment advisory services and the resulting performance of each
Fund, as well as the nature, quality and extent of services expected to be
provided by BlackRock Advisors. The Board focused primarily on the Investment
Adviser's investment advisory services and each Fund's investment performance,
but also considered certain areas in which both the Investment Adviser and the
Fund receive services as part of the Merrill Lynch complex. The Board compared
each Fund's performance -- both including and excluding the effects of fees and
expenses -- to the performance of a comparable group of mutual funds, and the
performance of a relevant index or combination of indexes. While the Board
reviews performance data at least quarterly, consistent with the Investment
Adviser's investment goals, the Board attaches more importance to performance
over relatively long periods of time, typically three to five years.
In evaluating the nature, quality and extent of the services to be provided by
BlackRock Advisors under each Fund's New Investment Advisory Agreement, the
trustees considered, among other things, the expected impact of the Transaction
on the operations, facilities, organization and personnel of New BlackRock and
how it would affect the Fund; the ability of BlackRock Advisors to perform its
duties after the Transaction; and any anticipated changes to the current
investment and other practices of the Fund. The trustees considered the fact
that it was being proposed that (i) Merrill Lynch New Jersey Municipal Bond Fund
acquire the assets and liabilities of BlackRock New Jersey Tax-Free Income
Portfolio, a portfolio of BlackRock Funds, and (ii) Merrill Lynch Pennsylvania
Municipal Bond Fund acquire the assets and liabilities of BlackRock Pennsylvania
Tax-Free Income Portfolio, another portfolio of BlackRock Funds, each as part of
a reorganization.
The trustees were given information with respect to the potential benefits to
each Fund and its shareholders from having access to BlackRock's state of the
art technology and risk management analytic tools, including the investment
tools provided under the BlackRock Solutions brand name.
The trustees were advised that, as a result of Merrill Lynch's equity interest
in BlackRock after the Transaction, the Funds will continue to be subject to
restrictions concerning certain transactions involving Merrill Lynch affiliates
(for example, transactions with a Merrill Lynch broker-dealer acting as
principal) absent revised or new regulatory relief. The trustees were advised
that a revision of existing regulatory relief with respect to these restrictions
was being sought from the Securities and Exchange Commission and were advised of
the possibility of receipt of such revised regulatory relief. There can be no
assurance that such relief will be obtained.
Based on their review of the materials provided and the assurances they had
received from the management of Merrill Lynch and of BlackRock, the trustees
determined that the nature and quality of services to be provided to each Fund
under its New Investment Advisory Agreement were expected to be as good as or
better than that provided under its Current Investment Advisory Agreement. It
was noted, however, that it is expected that there will be changes in per-
52 ANNUAL REPORTS JULY 31, 2006
sonnel following the Transaction and the combination of the operations of the
Investment Adviser and its affiliates with those of BlackRock. The trustees
noted that if current portfolio managers or other personnel cease to be
available, the Board would consider all available options, which could include
seeking the investment advisory or other services of BlackRock affiliates.
Accordingly, the trustees concluded that, overall, they were satisfied at the
present time with assurances from BlackRock and BlackRock Advisors as to the
expected nature, extent and quality of the services to be provided to each Fund
under its New Investment Advisory Agreement.
Costs of Services Provided and Profitability -- It was noted that, in
conjunction with the recent review of each Fund's Current Investment Advisory
Agreement, the trustees had received, among other things, a report from Lipper
comparing the Fund's fees, expenses and performance to those of a peer group
selected by Lipper, and information as to the fees charged by the Investment
Adviser or its affiliates to other registered investment company clients for
investment management services. The Board reviewed each Fund's contractual
management fee rate and actual management fee rate as a percentage of total
assets at common asset levels -- the actual rate includes advisory fees and the
effects of any fee waivers -- compared to the other funds in its Lipper
category. They also compared each Fund's total expenses to those of other
comparable funds. The information showed that each Fund had fees and expenses
within the range of fees and expenses of comparable funds. The Board considered
the services to be provided by and the fees to be charged by BlackRock Advisors
to other funds with similar investment mandates and noted that the fees charged
by BlackRock Advisors in those cases, including fee waivers and expense
reimbursements, were generally comparable to those being charged to each such
Fund. The Board concluded that each Fund's management fee and fee rate and
overall expense ratio are reasonable compared to those of other comparable
funds.
In evaluating the costs of the services to be provided by BlackRock Advisors
under each New Investment Advisory Agreement, the trustees considered, among
other things, whether advisory fees or other expenses would change as a result
of the Transaction. Based on their review of the materials provided and the fact
that each New Investment Advisory Agreement is substantially similar to the
corresponding Current Investment Advisory Agreement in all material respects,
including the rate of compensation, the trustees determined that the Transaction
should not increase the total fees payable, including any fee waivers or after
any expense caps or expense reimbursements, for any Fund's advisory and
administrative services. The trustees noted that it was not possible to predict
how the Transaction would affect BlackRock Advisors' profitability from its
relationship with each Fund.
The trustees discussed with BlackRock Advisors its general methodology to be
used in determining its profitability with respect to its relationship with each
Fund and noted that they expect to receive profitability information from
BlackRock Advisors on at least an annual basis.
Fees and Economies of Scale -- The Board considered the extent to which
economies of scale might be realized as the assets of each Fund increase and
whether there should be changes in the management fee rate or structure in order
to enable the Fund to participate in these economies of scale. The Board
determined that changes were not currently necessary and that each Fund
appropriately participated in these economies of scale.
In reviewing the Transaction, the trustees considered, among other things,
whether advisory fees or other expenses would change as a result of the
Transaction. Based on the fact that each Fund's New Investment Advisory
Agreement is substantially similar to its Current Investment Advisory Agreement
in all material respects, including the rate of compensation, the trustees
determined that as a result of the Transaction, the Fund's total advisory fees
would be no higher than the fees under its Current Investment Advisory
Agreement. The trustees concluded that, because the rates for advisory fees for
each Fund would be no higher than its current fee rates, the proposed management
fee structure, including any fee waivers, was reasonable and that no additional
changes were currently necessary.
Fall-Out Benefits -- The trustees considered whether the Funds would generate
any fall-out benefits to BlackRock Advisors. Fall-out benefits are indirect
profits from other activities that accrue to the adviser or its affiliates
solely because of the existence of the Funds. In evaluating the fall-out
benefits to be received by BlackRock Advisors under the New Investment Advisory
Agreement, the trustees considered whether the Transaction would have an impact
on the fall-out benefits received by the Investment Adviser by virtue of the
Current Investment Advisory Agreements. Based on their review of the materials
provided, including materials received in connection with their most recent
approval or continuance of each Current Investment Advisory Agreement, and their
discussions with management of the Invest-
ANNUAL REPORTS JULY 31, 2006 53
Disclosure of New Investment Advisory Agreement (concluded)
ment Adviser and BlackRock, the trustees determined that those benefits could
include increased ability for BlackRock to distribute shares of its funds and
other investment products. The trustees noted that any such benefits were
difficult to quantify with certainty at this time, and indicated that they would
continue to evaluate them going forward.
Investment Performance -- The trustees considered investment performance for
each Fund. The trustees compared each Fund's performance -- both including and
excluding the effects of the Fund's fees and expenses -- to the performance of a
comparable group of mutual funds, and the performance of a relevant index or
combination of indexes. The comparative information received from Lipper showed
Fund performance at various levels within the range of performance of comparable
funds over different time periods. The trustees believed each Fund's performance
was satisfactory. Also, the trustees took into account the investment
performance of funds currently advised by BlackRock Advisors. The Board
considered comparative information from Lipper which showed that the performance
of the funds advised by BlackRock Advisors was within the range of performance
of comparable funds over different time periods. The Board noted BlackRock's
considerable investment management experience and capabilities, but was unable
to predict what effect, if any, consummation of the Transaction would have on
the future performance of the Funds.
Conclusion -- After the independent trustees of the Funds deliberated in
executive session, the entire Board, including the independent trustees,
approved each Fund's New Investment Advisory Agreement, concluding that the
advisory fee rate was reasonable in relation to the services provided and that
the New Investment Advisory Agreement was in the best interests of Fund
shareholders. In approving each New Investment Advisory Agreement, the Board
noted that it anticipated reviewing the continuance of the agreement in advance
of the expiration of the initial two-year period.
Contingent BlackRock Subadvisory Agreements -- Matters Considered by the Board
At the telephonic and in-person meetings held during April and May 2006 at which
the Board of Trustees discussed and approved the New Investment Advisory
Agreements, the Board, including the independent trustees, also discussed and
approved contingent subadvisory agreements (the "Contingent Subadvisory
Agreements") between the Investment Adviser and BlackRock Advisors (the
"BlackRock Subadviser"). Each Contingent Subadvisory Agreement is intended to
ensure that a Fund operates with efficient portfolio management services until
the closing of the Transaction, in the event that the Board deems it necessary
and in the best interests of the Fund and its shareholders that the BlackRock
Subadviser assist in managing the operations of the Fund during the interim
period until the closing of the Transaction. The Contingent Subadvisory
Agreements would take effect only upon recommendation from the Investment
Adviser and upon subsequent approval of the Board in the period up to the
closing of the Transaction. The effectiveness of each Contingent Subadvisory
Agreement, therefore, is contingent on further Board approval. Pursuant to each
Contingent Subadvisory Agreement, a Fund's BlackRock Subadviser would receive a
monthly fee from the Investment Adviser equal to 50% of the advisory fee
received by the Investment Adviser. The Investment Adviser would pay the
BlackRock Subadviser out of its own resources. There would be no increase in
Fund expenses as a result of the Contingent Subadvisory Agreements.
54 ANNUAL REPORTS JULY 31, 2006
In making its approvals at the May in-person meeting, the Board considered the
Contingent Subadvisory Agreements in conjunction with the New Investment
Advisory Agreements and reviewed the same information and factors discussed
above, and came to the same conclusions. The Board also considered, in
conjunction with the Contingent Subadvisory Agreements, the necessity of
ensuring that the Funds operate with effective management services until the
closing of the Transaction. In reviewing the subadvisory fee rates provided in
the Contingent Subadvisory Agreements, the Board took note of the fact that both
the Investment Adviser and the BlackRock Subadviser would have significant
responsibilities under their respective advisory agreements. The Investment
Adviser would remain responsible for oversight of a Fund's operations and
administration and the BlackRock Subadviser would provide advisory services to
the Fund under the Contingent Subadvisory Agreement. The Board also took into
account the expected short duration of the term of any Contingent Subadvisory
Agreement and the fact that total advisory fees paid by a Fund would not
increase as a result of the Contingent Subadvisory Agreement. Under all of the
circumstances, the Board concluded that it was a reasonable allocation of fees
for the BlackRock Subadviser to receive 50% of the advisory fee paid by a Fund
to the Investment Adviser.
After the independent trustees deliberated in executive session, the entire
Board, including the independent trustees, approved each Contingent Subadvisory
Agreement, concluding that the advisory fees were reasonable in relation to the
services provided and that each Contingent Subadvisory Agreement was in the best
interests of shareholders.
ANNUAL REPORTS JULY 31, 2006 55
Officers and Trustees
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name Address & Age Funds Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Interested Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Robert C. P.O. Box 9011 President 2005 to President of the MLIM/FAM-advised funds since 2005; 131 Funds None
Doll, Jr.* Princeton, NJ and present President and Chief Investment Officer of MLIM and 178 Portfolios
08543-9011 Trustee FAM since 2001; Co-Head (Americas Region) thereof
Age: 51 from 2000 to 2001 and Senior Vice President from
1999 to 2001; President and Director of Princeton
Services, Inc. ("Princeton Services") since 2001;
President of Princeton Administrators, L.P.
("Princeton Administrators") since 2001; Chief
Investment Officer of OppenheimerFunds, Inc. in 1999
and Executive Vice President thereof from 1991 to
1999.
------------------------------------------------------------------------------------------------------------------------
* Mr. Doll is a director, trustee or member of an advisory board of certain other investment companies for which
MLIM or FAM acts as investment adviser. Mr. Doll is an "interested person," as defined in the Investment Company
Act, of the Fund based on his positions with MLIM, FAM, Princeton Services and Princeton Administrators. Trustees
serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. As Fund
President, Mr. Doll serves at the pleasure of the Board of Trustees.
====================================================================================================================================
Independent Trustees*
- ------------------------------------------------------------------------------------------------------------------------------------
James H. P.O. Box 9095 Trustee 1995 to Director, The China Business Group, Inc. since 1996 39 Funds None
Bodurtha** Princeton, NJ present and Executive Vice President thereof from 1996 to 59 Portfolios
08543-9095 2003; Chairman of the Board, Berkshire Holding
Age: 62 Corporation since 1980; Partner, Squire, Sanders &
Dempsey from 1980 to 1993.
- ------------------------------------------------------------------------------------------------------------------------------------
Kenneth A. P.O. Box 9095 Trustee 2005 to Professor, Harvard University since 1992; Professor, 39 Funds None
Froot Princeton, NJ present Massachusetts Institute of Technology from 1986 to 59 Portfolios
08543-9095 1992.
Age: 49
- ------------------------------------------------------------------------------------------------------------------------------------
Joe P.O. Box 9095 Trustee 2002 to Member of the Committee of Investment of Employee 39 Funds Kimco
Grills** Princeton, NJ present Benefit Assets of the Association of Financial 59 Portfolios Realty
08543-9095 Professionals ("CIEBA") since 1986; Member of Corporation
Age: 71 CIEBA's Executive Committee since 1988 and its
Chairman from 1991 to 1992; Assistant Treasurer of
International Business Machines Corporation ("IBM")
and Chief Investment Officer of IBM Retirement Funds
from 1986 to 1993; Member of the Investment Advisory
Committee of the State of New York Common Retirement
Fund since 1989; Member of the Investment Advisory
Committee of the Howard Hughes Medical Institute
from 1997 to 2000; Director, Duke University
Management Company from 1992 to 2004, Vice Chairman
thereof from 1998 to 2004, and Director Emeritus
thereof since 2004; Director, LaSalle Street Fund
from 1995 to 2001; Director, Kimco Realty
Corporation since 1997; Member of the Investment
Advisory Committee of the Virginia Retirement System
since 1998, Vice Chairman thereof from 2002 to 2005,
and Chairman thereof since 2005; Director,
Montpelier Foundation since 1998 and its Vice
Chairman since 2000; Member of the Investment
Committee of the Woodberry Forest School since 2000;
Member of the Investment Committee of the National
Trust for Historic Preservation since 2000.
56 ANNUAL REPORTS JULY 31, 2006
Officers and Trustees (continued)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name Address & Age Funds Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Independent Trustees* (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
Herbert I. P.O. Box 9095 Trustee 1987 to Chairman of the Board of Directors of Vigilant 39 Funds None
London Princeton, NJ present Research, Inc. since 2006; Member of the Board of 59 Portfolios
08543-9095 Directors for Grantham University since 2006;
Age: 67 Director of AIMS since 2006; Director of Reflex
Security since 2006; Director of InnoCentive, Inc.
since 2006; Director of Cerego, LLC since 2005;
Professor Emeritus, New York University since 2005;
John M. Olin Professor of Humanities, New York
University from 1993 to 2005 and Professor thereof
from 1980 to 2005; President, Hudson Institute since
1997 and Trustee thereof since 1980; Dean, Gallatin
Division of New York University from 1976 to 1993;
Distinguished Fellow, Herman Kahn Chair, Hudson
Institute from 1984 to 1985; Director, Damon Corp.
from 1991 to 1995; Overseer, Center for Naval
Analyses from 1983 to 1993.
- ------------------------------------------------------------------------------------------------------------------------------------
Roberta P.O. Box 9095 Trustee 2000 to Shareholder, Modrall, Sperling, Roehl, Harris & 39 Funds None
Cooper Princeton, NJ present Sisk, P.A. since 1993; President, American Bar 59 Portfolios
Ramo 08543-9095 Association from 1995 to 1996 and Member of the
Age: 63 Board of Governors thereof from 1994 to 1997;
Shareholder, Poole, Kelly and Ramo, Attorneys at Law
P.C. from 1977 to 1993; Director of ECMC Group
(service provider to students, schools and lenders)
since 2001; Director, United New Mexico Bank (now
Wells Fargo) from 1983 to 1988; Director, First
National Bank of New Mexico (now Wells Fargo) from
1975 to 1976; Vice President, American Law Institute
since 2004.
- ------------------------------------------------------------------------------------------------------------------------------------
Robert S. P.O. Box 9095 Trustee 2002 to Principal of STI Management (investment adviser) 39 Funds None
Salomon, Princeton, NJ present from 1994 to 2005; Chairman and CEO of Salomon 59 Portfolios
Jr. 08543-9095 Brothers Asset Management Inc. from 1992 to 1995;
Age: 69 Chairman of Salomon Brothers Equity Mutual Funds
from 1992 to 1995; regular columnist with Forbes
Magazine from 1992 to 2002; Director of Stock
Research and U.S. Equity Strategist at Salomon
Brothers Inc. from 1975 to 1991; Trustee, Commonfund
from 1980 to 2001.
------------------------------------------------------------------------------------------------------------------------
* Trustees serve until their resignation, removal or death, or until December 31 of the year in which they turn 72.
** Co-Chairman of the Board of Trustees and the Audit Committee.
ANNUAL REPORTS JULY 31, 2006 57
Officers and Trustees (concluded)
Position(s) Length of
Held with Time
Name Address & Age Funds Served Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Trust Officers*
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. P.O. Box 9011 Vice 1993 to Managing Director of MLIM and FAM since 2006 and Treasurer thereof since 1999;
Burke Princeton, NJ President present First Vice President of MLIM and FAM from 1997 to 2005: Senior Vice President and
08543-9011 and and Treasurer of Princeton Services since 1999 and Director since 2004; Vice President
Age: 46 Treasurer 1999 to of FAM Distributors, Inc. ("FAMD") since 1999 and Director since 2004; Vice
present President of MLIM and FAM from 1990 to 1997; Director of Taxation of MLIM from 1990
to 2001; Vice President, Treasurer and Secretary of the IQ Funds since 2004.
- ------------------------------------------------------------------------------------------------------------------------------------
Kenneth A. P.O. Box 9011 Senior Vice 2003 to Managing Director (Municipal Tax-Exempt Fund Management) of MLIM since 2000;
Jacob Princeton, NJ President present Director of MLIM from 1997 to 2000.
08543-9011
Age: 55
- ------------------------------------------------------------------------------------------------------------------------------------
John M. P.O. Box 9011 Senior Vice 2003 to Managing Director (Municipal Tax-Exempt Fund Management) of MLIM since 2000;
Loffredo Princeton, NJ President present Director of MLIM from 1997 to 2000.
08543-9011
Age: 42
- ------------------------------------------------------------------------------------------------------------------------------------
William R. P.O. Box 9011 Vice 1997 to Director (Municipal Tax-Exempt Fund Management) of MLIM since 2005; Vice President
Bock Princeton, NJ President present of MLIM from 1989 to 2005.
08543-9011
Age: 70
- ------------------------------------------------------------------------------------------------------------------------------------
Theodore P.O. Box 9011 Vice 1997 to Managing Director (Municipal Tax-Exempt Fund Management) of MLIM since 2005;
R. Jaeckel Princeton, NJ President present Director of MLIM from 1997 to 2005; Vice President of MLIM from 1991 to 1997.
Jr. 08543-9011
Age: 46
- ------------------------------------------------------------------------------------------------------------------------------------
Robert D. P.O. Box 9011 Vice 1997 to Director of MLIM since 2005; Vice President of MLIM from 1998 to 2005; Assistant
Sneeden Princeton, NJ President present Vice President of MLIM from 1994 to 1998.
08543-9011
Age: 52
- ------------------------------------------------------------------------------------------------------------------------------------
Jeffrey P.O. Box 9011 Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice President and
Hiller Princeton, NJ Compliance present Chief Compliance Officer of MLIM (Americas Region) since 2004; Chief Compliance
08543-9011 Officer Officer of the IQ Funds since 2004; Global Director of Compliance at Morgan Stanley
Age: 54 Investment Management from 2002 to 2004; Managing Director and Global Director of
Compliance at Citigroup Asset Management from 2000 to 2002; Chief Compliance
Officer at Soros Fund Management in 2000; Chief Compliance Officer at Prudential
Financial from 1995 to 2000; Senior Counsel in the Securities and Exchange
Commission's Division of Enforcement in Washington, D.C. from 1990 to 1995.
- ------------------------------------------------------------------------------------------------------------------------------------
Alice A. P.O. Box 9011 Secretary 2004 to Director (Legal Advisory) of MLIM since 2002; Vice President of MLIM from 1999 to
Pellegrino Princeton, NJ present 2002; Attorney associated with MLIM since 1997; Secretary of MLIM, FAM, FAMD and
08543-9011 Princeton Services since 2004.
Age: 46
------------------------------------------------------------------------------------------------------------------------
* Officers of the Trust serve at the pleasure of the Board of Trustees.
- ------------------------------------------------------------------------------------------------------------------------------------
Further information about the Funds' Officers and Trustees is available in the Funds' Statement of Additional
Information, which can be obtained without charge by calling 1-800-637-3863.
- ------------------------------------------------------------------------------------------------------------------------------------
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
58 ANNUAL REPORTS JULY 31, 2006
Availability of Quarterly Schedule of Investments
The Funds file their complete schedules of portfolio holdings with the
Securities and Exchange Commission ("SEC") for the first and third quarters of
each fiscal year on Form N-Q. The Funds' Forms N-Q are available on the SEC's
Web site at http://www.sec.gov. The Funds' Forms N-Q may also be reviewed and
copied at the SEC's Public Reference Room in Washington, DC. Information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Electronic Delivery
The Funds offer electronic delivery of communications to their shareholders. In
order to receive this service, you must register your account and provide us
with e-mail information. To sign up for this service, simply access this Web
site at http://www.icsdelivery.com/live and follow the instructions. When you
visit this site, you will obtain a personal identification number (PIN). You
will need this PIN should you wish to update your e-mail address, choose to
discontinue this service and/or make any other changes to the service. This
service is not available for certain retirement accounts at this time.
ANNUAL REPORTS JULY 31, 2006 59
[LOGO] Merrill Lynch Investment Managers
www.mlim.ml.com
- --------------------------------------------------------------------------------
Mercury Advisors
A Division of Merrill Lynch Investment Managers
www.mercury.ml.com
These reports are not authorized for use as an offer of sale or a solicitation
of an offer to buy shares of the Funds unless accompanied or preceded by the
Funds' 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.
A description of the policies and procedures that the Funds use to determine how
to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-637-3863; (2) at
www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's Web
site at http://www.sec.gov. Information about how the Funds voted proxies
relating to securities held in the Funds' portfolio during the most recent
12-month period ended June 30 is available (1) at www.mutualfunds.ml.com and (2)
on the Securities and Exchange Commission's Web site at http://www.sec.gov.
Merrill Lynch Florida Municipal Bond Fund
Merrill Lynch New Jersey Municipal Bond Fund
Merrill Lynch Pennsylvania Municipal Bond Fund
Of Merrill Lynch Multi-State Municipal Series Trust
Box 9011
Princeton, NJ 08543-9011
#MBFLNJPA -- 7/06
Item 2 - Code of Ethics - The registrant has adopted a code of ethics, as of the
end of the period covered by this report, that applies to the
registrant's principal executive officer, principal financial officer
and principal accounting officer, or persons performing similar
functions. A copy of the code of ethics is available without charge
upon request by calling toll-free 1-800-MER-FUND (1-800-637-3863).
Item 3 - Audit Committee Financial Expert - The registrant's board of directors
has determined that (i) the registrant has the following audit
committee financial experts serving on its audit committee and (ii)
each audit committee financial expert is independent: (1) Joe Grills,
(2) Robert S. Salomon, Jr., and (3) Stephen B. Swensrud (retired as of
December 31, 2005).
Item 4 - Principal Accountant Fees and Services
Merrill Lynch Florida Municipal Bond Fund
(a) Audit Fees - Fiscal Year Ending July 31, 2006 - $26,500
Fiscal Year Ending July 31, 2005 - $26,000
(b) Audit-Related Fees - Fiscal Year Ending July 31, 2006 - $0
Fiscal Year Ending July 31, 2005 - $0
(c) Tax Fees - Fiscal Year Ending July 31, 2006 - $6,000
Fiscal Year Ending July 31, 2005 - $5,700
The nature of the services include tax compliance, tax advice and tax
planning.
(d) All Other Fees - Fiscal Year Ending July 31, 2006 - $0
Fiscal Year Ending July 31, 2005 - $0
Merrill Lynch New Jersey Municipal Bond Fund
(a) Audit Fees - Fiscal Year Ending July 31, 2006 - $26,500
Fiscal Year Ending July 31, 2005 - $26,000
(b) Audit-Related Fees - Fiscal Year Ending July 31, 2006 - $12,900
Fiscal Year Ending July 31, 2005 - $0
The nature of the services include assurance and related services
reasonably related to the performance of the audit of financial
statements not included in Audit Fees.
(c) Tax Fees - Fiscal Year Ending July 31, 2006 - $6,000
Fiscal Year Ending July 31, 2005 - $5,700
The nature of the services include tax compliance, tax advice and tax
planning.
(d) All Other Fees - Fiscal Year Ending July 31, 2006 - $0
Fiscal Year Ending July 31, 2005 - $0
Merrill Lynch Pennsylvania Municipal Bond Fund
(a) Audit Fees - Fiscal Year Ending July 31, 2006 - $25,500
Fiscal Year Ending July 31, 2005 - $25,000
(b) Audit-Related Fees - Fiscal Year Ending July 31, 2006 - $12,900
Fiscal Year Ending July 31, 2005 - $0
The nature of the services include assurance and related services
reasonably related to the performance of the audit of financial
statements not included in Audit Fees.
(c) Tax Fees - Fiscal Year Ending July 31, 2006 - $6,000
Fiscal Year Ending July 31, 2005 - $5,700
The nature of the services include tax compliance, tax advice and tax
planning.
(d) All Other Fees - Fiscal Year Ending July 31, 2006 - $0
Fiscal Year Ending July 31, 2005 - $0
(e)(1) The registrant's audit committee (the "Committee") has adopted
policies and procedures with regard to the pre-approval of services.
Audit, audit-related and tax compliance services provided to the
registrant on an annual basis require specific pre-approval by the
Committee. The Committee also must approve other non-audit services
provided to the registrant and those non-audit services provided to the
registrant's affiliated service providers that relate directly to the
operations and the financial reporting of the registrant. Certain of
these non-audit services that the Committee believes are a) consistent
with the SEC's auditor independence rules and b) routine and recurring
services that will not impair the independence of the independent
accountants may be approved by the Committee without consideration on a
specific case-by-case basis ("general pre-approval"). However, such
services will only be deemed pre-approved provided that any individual
project does not exceed $5,000 attributable to the registrant or
$50,000 for all of the registrants the Committee oversees. Any proposed
services exceeding the pre-approved cost levels will require specific
pre-approval by the Committee, as will any other services not subject
to general pre-approval (e.g., unanticipated but permissible services).
The Committee is informed of each service approved subject to general
pre-approval at the next regularly scheduled in-person board meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending July 31, 2006 - $2,186,750
Fiscal Year Ending July 31, 2005 - $7,926,666
(h) The registrant's audit committee has considered and determined that
the provision of non-audit services that were rendered to the
registrant's investment adviser and any entity controlling, controlled
by, or under common control with the investment adviser that provides
ongoing services to the registrant that were not pre-approved pursuant
to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible
with maintaining the principal accountant's independence.
Regulation S-X Rule 2-01(c)(7)(ii) - $1,409,500, 0%
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - Portfolio Managers of Closed-End Management Investment Companies - Not
Applicable
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 11 - Controls and Procedures
11(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others particularly
during the period in which this report is being prepared. The
registrant's certifying officers have determined that the registrant's
disclosure controls and procedures are effective based on our evaluation
of these controls and procedures as of a date within 90 days prior to
the filing date of this report.
11(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR
270.30a-3(d)) that occurred during the second fiscal half-year of the
period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - See Item 2
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Merrill Lynch Multi-State Municipal Series Trust
By: /s/ Robert C. Doll, Jr.
----------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
Merrill Lynch Multi-State Municipal Series Trust
Date: September 20, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Robert C. Doll, Jr.
----------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
Merrill Lynch Multi-State Municipal Series Trust
Date: September 20, 2006
By: /s/ Donald C. Burke,
----------------------------
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Multi-State Municipal Series Trust
Date: September 20, 2006