MERRILL
LYNCH
ARIZONA
MUNICIPAL
BOND FUND
Semi-Annual Report January 31, 1994
This report is not authorized for use as an offer of sale
or a solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered
a representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Merrill Lynch Arizona
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, New Jersey
08543-9011
TO OUR SHAREHOLDERS
As 1993 drew to a close, the US economy showed signs of strong
improvement. The initial estimate for gross domestic product
(GDP) growth in the final quarter of 1993 was +5.9% in real
terms, the strongest quarterly performance since the fourth
quarter of 1987. GDP growth was led by interest rate-sensitive
sectors, such as housing, durable goods orders and business
investment in capital equipment. Consumer confidence also
improved after remaining lackluster throughout most of 1993.
While the exceptionally robust rate of growth may not be
sustainable in the first quarter of 1994 (especially considering
the harsh winter weather experienced by virtually half of the
country in January), this strong showing suggests that the US
economy may at last be gaining momentum. This was supported by
the December increase in the Index of Leading Economic
Indicators, the fifth monthly rise in this indicator of future
economic activity.
<PAGE>
At the same time, the rate of inflation remains in check.
Nevertheless, concerns arose late in 1993 that the rate of
business activity might increase inflationary pressures, which
were reflected in an upturn of longer-term interest rates. In
January, Federal Reserve Board Chairman Alan Greenspan indicated
in Congressional testimony that continued strong expansion of
economic activity would lead the central bank to tighten monetary
policy in an effort to contain inflation. On February 4, 1994,
the central bank broke with tradition and publicly announced an
increase in short-term interest rates. In the weeks ahead,
investors will continue to gauge the pace of the economic
expansion and watch for signs of an overheating economy that
could prompt successive Federal Reserve Board actions to raise
short-term interest rates.
The Municipal Market
Yields on tax-exempt securities generally declined over the three
months ended January 31, 1994. Long-term revenue bond yields, as
measured by the Bond Buyer Revenue Bond Index, declined an
additional six basis points (0.06%) to end the quarter at 5.50%.
US Treasury bond yields, however, rose approximately 25 basis
points to end the period at approximately 6.20%. This
outperformance by municipal securities is likely to be the
dominant theme for much of 1994.
During the January quarter, taxable yields remained volatile in
reaction to the inherent conflicts between the extremely strong
economic recovery seen during the last quarter of 1993 and
continued low inflationary pressures. Tax-exempt bond yields,
however, reflected very positive technical factors. During the 12
months ended January 31, 1994, municipalities issued more than
$288 billion in securities, an increase of more than 21% versus
one year ago. As we have discussed in earlier reports to
shareholders, much of this increase has been the result of
municipalities refinancing existing higher-couponed debt. At
current yield levels, few of these issues remain to be refunded.
This has led to estimates of municipal bond issuance declining to
approximately $175 billion for all of 1994. More than $290
billion in long-term tax-exempt securities was issued in 1993.
In addition to this dramatic decline in issuance, investor demand
is expected to increase in the coming year. Greater demand should
be generated by a number of factors, with the recent increases in
marginal Federal income tax rates the most important. Also, bond
calls and early redemption are expected to increase significantly
in the coming quarters and last into early 1995, at least. The
combination of declining new-issue volume and increasing numbers
of bonds redeemed prior to their stated maturities will eventually
lead to a net decline in the number of bonds outstanding. In such
a scenario, investor demand rises as bondholders are forced to
continually purchase new municipal bonds to replace their previous
holdings.
<PAGE>
The outlook for the municipal bond market is very favorable.
While the historic declines in yields seen over the last year are
unlikely to be repeated, the strong technical framework within
the tax-exempt market would support further modest declines in
tax-exempt yields. At the very least, should interest rates rise
in response to continued strong economic growth and a resurgence
in inflationary pressures, we believe that municipal bond price
deterioration will be minimal in comparison to taxable investment
alternatives.
Portfolio Strategy
Merrill Lynch Arizona Municipal Bond Fund has experienced few
structural changes over the past quarter. In anticipation of some
interest rate volatility resulting from changing national
economic conditions, we have maintained a cash equivalent reserve
position of approximately 7%. This provided the Fund with the
liquidity to take advantage of the recent new-issue market where
a price concession could be achieved versus the more expensive
secondary market.
With credit yields at historically narrow spreads, credit quality
remains a priority. Currently, 57.5% of the Fund's total assets
are rated AA or Aa or better by Moody's Investors Service, Inc.
or Standard & Poor's Corporation, respectively. It is our
intention to use any significant pullbacks in bond prices to
purchase additional performance-oriented positions since the
technical supply/demand relationship should favor better
municipal bond prices later in the year.
We appreciate your ongoing interest in Merrill Lynch Arizona
Municipal Bond Fund, and we look forward to serving your
investment needs and objectives in the months and years to come.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Vice President and Portfolio Manager
March 3, 1994
<PAGE>
OFFICERS AND TRUSTEES
Arthur Zeikel, President and Trustee
Kenneth S. Axelson, Trustee
Herbert I. London, Trustee
Robert R. Martin, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Terry K. Glenn, Executive Vice President
Donald C. Burke, Vice President
Vincent R. Giordano, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Jerry Weiss, Secretary
Custodian
National Westminster Bank NJ
10 Exchange Place
Jersey City, New Jersey 07302
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
PERFORMANCE DATA
None of the past results shown should be considered a
representation of future performance. Investment return and
principal value of Class A and Class B Shares will fluctuate
so that shares, when redeemed, may be worth more or less than
their original cost.
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
11/29/91--12/31/91 $10.00 $10.24 -- $0.052 + 2.92%
1992 10.24 10.49 -- 0.741 +10.02
1993 10.49 11.07 $0.065 0.739 +13.48
1/1/94--1/31/94 11.07 11.18 -- 0.034 + 1.39
------ ------
Total $0.065 Total $1.566
Cumulative total return as of 1/31/94: +30.27%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital
gains distributions at net asset value on the payable date,
and do not include sales charge; results would be lower if
sales charge was included.
</TABLE>
<PAGE>
<TABLE>
Performance Summary--Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
11/29/91--12/31/91 $10.00 $10.24 -- $0.047 + 2.87%
1992 10.24 10.49 -- 0.688 + 9.46
1993 10.49 11.07 $0.065 0.684 +12.91
1/1/94--1/31/94 11.07 11.18 -- 0.030 + 1.36
------ ------
Total $0.065 Total $1.449
Cumulative total return as of 1/31/94: +28.86%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital
gains distributions at net asset value on the payable date,
and do not reflect deduction of any sales charge; results
would be lower if sales charge was deducted.
</TABLE>
Average Annual Total Return
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
Year Ended 12/31/93 +13.48% + 8.94%
Inception (11/29/91)
through 12/31/93 +12.74 +10.56
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Class B Shares* Without CDSC With CDSC**
Year Ended 12/31/93 +12.91% + 8.91%
Inception (11/29/91)
through 12/31/93 +12.17 +11.32
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced
to 0% after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
<PAGE>
PERFORMANCE DATA (concluded)
<TABLE>
Recent Performance Results*
<CAPTION>
12 Month 3 Month
1/31/94 10/31/93 1/31/93 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares $11.18 $11.28 $10.56 + 6.49%(1) -0.31%(1)
Class B Shares 11.18 11.28 10.56 + 6.49(1) -0.31(1)
Class A Shares--Total Return +13.80(2) +2.42(3)
Class B Shares--Total Return +13.23(4) +2.29(5)
Class A Shares--Standardized 30-day Yield 4.21%
Class B Shares--Standardized 30-day Yield 3.89%
(FN)
*Investment results shown for the 3-month and 12-month periods are before the deduction of any sales charges.
(1)Percent change includes reinvestment of $0.065 per share capital gains distributions.
(2)Percent change includes reinvestment of $0.738 per share ordinary income dividends and $0.065 per share
capital gains distributions.
(3)Percent change includes reinvestment of $0.303 per share ordinary income dividends and $0.065 per share
capital gains distributions.
(4)Percent change includes reinvestment of $0.682 per share ordinary income dividends and $0.065 per share
capital gains distributions.
(5)Percent change includes reinvestment of $0.288 per share ordinary income dividends and $0.065 per share
capital gains distributions.
</TABLE>
PORTFOLIO ABBREVIATIONS
To simplify the listings of Merrill Lynch Arizona
Municipal Bond Fund's portfolio holdings in the Schedule
of Investments, we have abbreviated the names of many of
the securities according to the list at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
GO General Obligation Bonds
IDA Industrial Development Authority
PCR Pollution Control Revenue Bonds
RIB Residual Income Bonds
STRIPES Short-Term Rate Inverse Payment Exempt Securities
UT Unlimited Tax
VRDN Variable Rate Demand Notes
YCN Yield Curve Notes
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Arizona--89.1%
<S> <S> <C> <S> <C>
Apache County, Arizona, Public Finance Corporation, COP:
A A $1,425 5.50% due 5/01/2007 $ 1,447
A A 500 5.50% due 5/01/2010 500
Arizona Educational Loan Marketing Corporation, Educational Loan Revenue
Bonds, AMT, Series B:
NR A 2,000 7% due 3/01/2002 2,272
NR A 1,600 7% due 3/01/2003 1,836
NR A 1,100 7% due 3/01/2005 1,244
NR A 750 Arizona Educational Loan Marketing Corporation, Educational Loan Revenue
Bonds, AMT, Sub-Series, 6.625% due 9/01/2005 836
AAA Aaa 1,750 Arizona Health Facilities Authority, Hospital Systems Revenue Bonds
(Samaritan Health Services), 6.25% due 12/01/2006 (d) 1,927
NR Ba 2,415 Arizona Health Facilities Authority, Hospital Systems Revenue Refunding
Bonds (Saint Luke's Health Systems), 7.25% due 11/01/2014 2,582
AAA Aaa 245 Arizona Health Facilities Authority Revenue Bonds (Yavapai Community Hospital),
Series B, 7.25% due 10/01/2013 (b) 282
A+ A 850 Arizona State University, COP (Towers Project), 7.05% due 7/01/2010 958
AA A1 2,750 Arizona State University, Revenue Refunding Bonds, Series A, 5.50% due 7/01/2019 2,844
AA Aa 1,000 Arizona Transportation Board, Highway Revenue Bonds, Sub-Series B,
6.50% due 7/01/2011 (e) 1,161
AA+ Aa 2,000 Arizona Wastewater Management Authority, Wastewater Treatment Financial Assistance
Revenue Bonds, 6.80% due 7/01/2011 2,301
AAA Aaa 700 Avondale, Arizona, Municipal Development Corporation, Municipal Facilities
Revenue Bonds, 6.625% due 7/01/2011 (d) 784
AA- A1 1,945 Central Arizona Water Conservation District, Contract Revenue Bonds
(Central Arizona Project), Series B, 6.50% due 11/01/2011 2,174
AAA NR 2,100 Coconino County, Arizona, IDA (Individual Development Revenue Citizens Utilities
Company Project), AMT, 5.80% due 11/15/2028 2,182
<PAGE>
Coconino and Yavapai Counties, Arizona, Joint Unified School District No. 9
Revenue Bonds (Sedona Oak Creek), Series A, UT:
A- Baa1 200 6.70% due 7/01/2006 220
A- Baa1 250 6.75% due 7/01/2007 275
AAA Aaa 3,520 Gilbert, Arizona, Water & Sewer Revenue Refunding Bonds, 6.50% due 7/01/2022 (b) 4,000
A A3 4,000 Greenlee County, Arizona, IDA, PCR, Refunding (Phelps Dodge Corporation Project),
5.45% due 6/01/2009 4,075
AAA Aaa 2,000 Maricopa County, Arizona, IDA, Health Facilities Revenue Bonds (Saint Joseph's
Care Center Project), Series A, 7.75% due 7/01/2020 (d) 2,390
A1+ VMIG1 1,700 Maricopa County, Arizona, IDA, Hospital Facility Revenue Bonds (Samaritan Health
Service Hospital), VRDN, 2% due 12/01/2008 (d)(f) 1,700
Maricopa County, Arizona, IDA, Hospital Facilities Revenue Refunding Bonds:
AAA Aaa 2,800 (John C. Lincoln Hospital), 7.50% due 12/01/2013 (c) 3,333
AAA Aaa 750 (Samaritan Health Services), Series A, 7% due 12/01/2013 (d) 871
BB Ba2 1,000 Maricopa County, Arizona, Pollution Control Corporation, PCR, Refunding (Public
Service Company--Palo Verde), 6.375% due 8/15/2023 1,026
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Arizona (continued)
<S> <S> <C> <S> <C>
AA A1 $1,900 Maricopa County, Arizona, School District No. 3 (Tempe Elementary Projects of 1991),
Series C, UT, 6% due 7/01/2011 $ 2,074
AAA Aaa 500 Maricopa County, Arizona, Unified School District No. 11-Peoria, Revenue
Refunding Bonds, 6.40% due 7/01/2010 (d) 555
AAA Aaa 2,000 Mesa, Arizona, IDA, Health Care Facilities Revenue Bonds (Western Health Network),
Series A-1, 7.625% due 1/01/2019 (a) 2,316
AAA Aaa 2,325 Mohave County, Arizona, Unified High School District No. 30-Mohave Revenue Bonds,
Series B, UT, 6.70% due 7/01/2011 (b)(e) 2,725
Navajo County, Arizona, Pollution Control Corporation, Revenue Refunding Bonds
(Arizona Public Service Corporation), Series A:
AAA Aaa 1,000 5.50% due 8/15/2028 (h) 1,026
BBB Baa2 5,000 5.875% due 8/15/2028 5,044
Peoria, Arizona, Improvement District, Special Assessment Bonds:
BBB NR 430 7.20% due 1/01/2010 478
BBB NR 510 7.20% due 1/01/2013 562
<PAGE>
Peoria, Arizona, Improvement District, Special Assessment Bonds (North Valley
Power Center No. 8801):
BBB NR 200 7.30% due 1/01/2009 228
BBB NR 395 7.30% due 1/01/2011 448
AAA Aaa 1,000 Peoria, Arizona, Municipal Development Authority, Municipal Facilities Revenue
Refunding Bonds, 5.20% due 7/01/2013 (d) 1,008
Peoria, Arizona, Municipal Development Authority, Municipal Facilities Utility
Revenue Bonds (e):
BBB+ NR 150 7.05% due 7/01/2002 176
BBB+ NR 155 7.10% due 7/01/2003 182
AAA Aaa 1,000 Peoria, Arizona, Water and Sewer Revenue Refunding Bonds, 6.625% due 7/01/2006 (b) 1,122
AA+ Aa 2,000 Phoenix, Arizona, Civic Improvement Corporation, Excise Tax Revenue Bonds
(Senior Lien--New City Hall Project), 5.10% due 7/01/2018 1,975
A A1 4,000 Phoenix, Arizona, Civic Improvement Corporation, Wastewater Systems Lease, Revenue
Refunding Bonds, 4.75% due 7/01/2023 3,663
AA+ Aa 1,860 Phoenix, Arizona, GO, Refunding, AMT, UT, 6.375% due 7/01/2013 2,078
A1+ VMIG1 1,200 Phoenix, Arizona, Revenue Bonds, Series 1, AMT, VRDN, 2.30% due 6/01/2016 (f) 1,200
AA NR 2,000 Phoenix, Arizona, Street and Highway User Revenue Bonds, Senior Lien,
6.25% due 7/01/2011 2,355
AAA Aaa 1,750 Pima County, Arizona, Sewer Revenue Refunding Bonds, 6.75% due 7/01/2015 (b) 1,986
AAA Aaa 1,065 Pima County, Arizona, Unified School District No. 1-Tucson Revenue Bonds, Series D,
UT, 5.90% due 7/01/2005 (b) 1,174
AA P1 3,000 Pinal County, Arizona, IDA, PCR (Magna-Copper-Newmont Mining Corporation), VRDN,
2.05% due 12/01/2009 (f) 3,000
BBB- NR 750 Prescott Valley, Arizona, Improvement District, Special Assessment Sewer Collection
System, Roadway Repair Revenue Bonds, 7.90% due 1/01/2012 860
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Arizona (concluded))
<S> <S> <C> <S> <C>
Salt River Project, Arizona, Agricultural Improvement and Power District, Electric
System Revenue Bonds, Series A:
AA Aa $2,000 6.50% due 1/01/2022 $ 2,201
AA Aaa 2,000 7.30% due 1/01/2030 (e) 2,377
AA Aa 2,000 Salt River Project, Arizona, Agricultural Improvement and Power District,
Electric System Revenue Bonds, STRIPES, 6.97% due 1/01/2011 (g) 1,998
BBB NR 1,600 Sedona, Arizona, Sewer Revenue Refunding Bonds, 7% due 7/01/2012 1,819
AAA Aaa 500 Tucson, Arizona, Airport Authority Revenue Bonds, AMT, Series B, 7.25%
due 6/01/2020 (d) 577
AAA Aaa 1,900 Tucson, Arizona, Refunding Bonds, 5.40%* due 7/01/2013 (b) 665
A+ NR 2,650 Tucson, Arizona, Water Revenue Bonds, Series D, 6.75% due 7/01/2019 (e) 3,125
Tucson, Arizona, Water Revenue Refunding Bonds:
A+ A1 1,250 6.50% due 7/01/2016 1,391
A+ A1 1,400 Series A, 5.75% due 7/01/2018 1,468
AAA Aaa 750 University of Arizona, Medical Center Corporation, Hospital Revenue Bonds,
7% due 7/01/2001 (d)(e) 896
University of Arizona Revenue Bonds (e):
AA NR 500 Series A, 7% due 6/01/2015 588
AA NR 1,920 Series B, 6.90% due 6/01/2016 2,249
Puerto Rico--9.9%
BBB Baa 3,305 Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue Bonds,
Series A, 7% due 7/01/2019 3,666
A Baa1 2,000 Puerto Rico Commonwealth Highway and Transportation Authority, Highway
Revenue Refunding Bonds, Series V, 5.75% due 7/01/2018 2,050
AAA Aaa 2,000 Puerto Rico Commonwealth YCN, 9.132% due 7/01/2020 (c)(g) 2,292
AAA Aaa 1,900 Puerto Rico Electric Power Authority, Power Revenue Bonds, RIB, 9.428%
due 7/01/2023 (c)(g) 2,204
A- Baa1 720 Puerto Rico Electric Power Authority, Power Revenue Bonds,
Series N, 7.125% due 7/01/2014 817
<PAGE>
Total Investments (Cost--$101,322)--99.0% 109,838
Other Assets Less Liabilities--1.0% 1,069
--------
Net Assets--100.0% $110,907
========
<FN>
*Represents approximate yield to maturity.
(a)BIG Insured.
(b)FGIC Insured.
(c)FSA Insured.
(d)MBIA Insured.
(e)Prerefunded.
(f)The interest rate is subject to change periodically based
on prevailing market rates. The interest rates shown are those
in effect at January 31, 1994.
(g)The interest rate is subject to change periodically and inversely
to the prevailing market rate. The interest rate shown is the
rate in effect at January 31, 1994.
(h)AMBAC Insured.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Statement of Assets and Liabilities as of January 31, 1994
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$101,321,702) (Note 1a) $109,838,191
Cash 73,404
Receivables:
Securities sold $ 1,957,392
Interest 978,079
Beneficial interest sold 455,817 3,391,288
------------
Deferred organization expenses (Note 1e) 49,666
Prepaid expenses and other assets (Note 1e) 22,055
------------
Total assets 113,374,604
------------
Liabilities: Payables:
Securities purchased 1,919,411
Beneficial interest redeemed 314,552
Dividends to shareholders (Note 1f) 100,102
Distributor (Note 2) 34,632
Investment adviser (Note 2) 25,852 2,394,549
------------
Accrued expenses and other liabilities 73,510
------------
Total liabilities 2,468,059
------------
Net Assets: Net assets $110,906,545
============
<PAGE>
Net Assets Class A Shares of beneficial interest, $.10 par value,
Consist of: unlimited number of shares authorized $ 198,966
Class B Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 793,198
Paid-in capital in excess of par 101,069,552
Undistributed realized capital gains--net 328,340
Unrealized appreciation on investments--net 8,516,489
------------
Net assets $110,906,545
============
Net Asset Value: Class A--Based on net assets of $22,241,174 and
1,989,662 shares of beneficial interest outstanding $ 11.18
============
Class B--Based on net assets of $88,665,371 and
7,931,979 shares of beneficial interest outstanding $ 11.18
============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the
Six Months Ended
January 31, 1994
<S> <S> <C>
Investment Income Interest and amortization of premium and discount earned $ 2,972,511
(Note 1d):
Expenses: Investment advisory fees (Note 2) 288,571
Distribution fees--Class B (Note 2) 213,432
Professional fees 28,989
Printing and shareholder reports 25,366
Accounting services (Note 2) 23,420
Transfer agent fees--Class B (Note 2) 17,197
Custodian fees 8,230
Amortization of organization expenses (Note 1e) 7,445
Registration fees (Note 1e) 6,489
Pricing fees 4,508
Transfer agent fees--Class A (Note 2) 3,393
Trustees' fees and expenses 2,346
Other 1,928
------------
Total expenses before reimbursement 631,314
Reimbursement of expenses (Note 2) (132,119)
------------
<PAGE> Total expenses after reimbursement 499,195
------------
Investment income--net 2,473,316
------------
Realized & Realized gain on investments--net 1,300,236
Unrealized Change in unrealized appreciation on investments--net 2,333,230
Gain on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 6,106,782
(Notes 1d & 3): ============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the For the
Six Months Year
Ended Ended
January 31, July 31,
Increase (Decrease) in Net Assets: 1994 1993
<S> <S> <C> <C>
Operations: Investment income--net $ 2,473,316 $ 4,423,726
Realized gain on investments--net 1,300,236 1,488,701
Change in unrealized appreciation on investments--net 2,333,230 2,011,436
------------ ------------
Net increase in net assets resulting from operations 6,106,782 7,923,863
------------ ------------
Dividends & Investment income--net:
Distributions to Class A (501,271) (901,362)
Shareholders Class B (1,972,045) (3,522,364)
(Note 1f): Realized gain on investments--net:
Class A (387,547) (182,088)
Class B (1,714,015) (744,535)
------------ ------------
Net decrease in net assets resulting from dividends and distributions
to shareholders (4,574,878) (5,350,349)
------------ ------------
Beneficial Interest Net increase in net assets derived from beneficial
Transactions interest transactions 10,308,701 22,046,923
(Note 4): ------------ ------------
Net Assets: Total increase in net assets 11,840,605 24,620,437
Beginning of period 99,065,940 74,445,503
------------ ------------
End of period $110,906,545 $ 99,065,940
============ ============
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
Class A
For the
For the For the Period
The following per share data and ratios have been derived Six Months Year Nov. 29,
from information provided in the financial statements. Ended Ended 1991++ to
January 31, July 31, July 31,
Increase (Decrease) in Net Asset Value: 1994 1993 1992
<S> <S> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.01 $ 10.74 $ 10.00
Operating -------- -------- --------
Performance: Investment income--net .29 .60 .41
Realized and unrealized gain on investments--net .39 .39 .74
-------- -------- --------
Total from investment operations .68 .99 1.15
-------- -------- --------
Less dividends and distributions:
Investment income--net (.29) (.60) (.41)
Realized gain on investments--net (.22) (.12) --
-------- -------- --------
Total dividends and distributions (.51) (.72) (.41)
-------- -------- --------
Net asset value, end of period $ 11.18 $ 11.01 $ 10.74
======== ======== ========
Total Investment Based on net asset value per share 6.27%+++ 9.63% 11.82%+++
Return:** ======== ======== ========
Ratios to Expenses, net of reimbursement .54%* .41% .22%*
Average ======== ======== ========
Net Assets: Expenses .79%* .81% .98%*
======== ======== ========
Investment income--net 5.12%* 5.57% 5.99%*
======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 22,241 $ 17,988 $14,564
Data: ======== ======== ========
Portfolio turnover 33.26% 73.48% 66.50%
======== ======== ========
<FN>
++Commencement of Operations.
+++Aggregate total investment return.
*Annualized.
**Total investment returns exclude the effects of sales loads.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class B
For the
For the For the Period
The following per share data and ratios have been derived Six Months Year Nov. 29,
from information provided in the financial statements. Ended Ended 1991++ to
January 31, July 31, July 31,
Increase (Decrease) in Net Asset Value: 1994 1993 1992
<S> <S> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.01 $ 10.74 $ 10.00
Operating -------- -------- --------
Performance: Investment income--net .26 .54 .38
Realized and unrealized gain on investments--net .39 .39 .74
-------- -------- --------
Total from investment operations .65 .93 1.12
-------- -------- --------
Less dividends and distributions:
Investment income--net (.26) (.54) (.38)
Realized gain on investments--net (.22) (.12) --
-------- -------- --------
Total dividends and distributions (.48) (.66) (.38)
-------- -------- --------
Net asset value, end of period $ 11.18 $ 11.01 $ 10.74
======== ======== ========
Total Investment Based on net asset value per share 6.00%+++ 9.08% 11.45%+++
Return:** ======== ======== ========
Ratios to Expenses, excluding distribution fees and net of
Average reimbursement .55%* .42% .24%*
Net Assets: ======== ======== ========
Expenses, net of reimbursement 1.05%* .92% .74%*
======== ======== ========
Expenses 1.30%* 1.32% 1.47%*
======== ======== ========
Investment income--net 4.62%* 5.06% 5.48%*
======== ======== ========
Supplemental Net assets, end of period (in thousands). $ 88,665 $ 81,078 $ 59,881
Data: ======== ======== ========
Portfolio turnover 33.26% 73.48% 66.50%
======== ======== ========
<FN>
++Commencement of Operations.
+++Aggregate total investment return.
*Annualized.
**Total investment returns exclude the effects of sales loads.
See Notes to Financial Statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Arizona Municipal Bond Fund (the "Fund") is part of
Merrill Lynch Multi-State Municipal Series Trust (the "Trust").
The Fund is registered under the Investment Company Act of 1940
as a diversified, open-end management investment company. The Fund
offers both Class A and Class B Shares. Class A Shares are sold
with a front-end sales charge. Class B Shares may be subject to a
contingent deferred sales charge. Both classes of shares have
identical voting, dividend, liquidation and other rights and the
same terms and conditions, except that Class B Shares bear
certain expenses related to the distribution of such shares and
have exclusive voting rights with respect to matters relating to
such distribution expenditures. The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments--Municipal bonds and other portfolio
securities in which the Fund invests are traded primarily in the
over-the-counter municipal bond and money markets and are valued at
the last available bid price in the over-the-counter market or on
the basis of yield equivalents as obtained from one or more
dealers that make markets in the securities. Financial futures
contracts and options thereon, which are traded on exchanges, are
valued at their settlement prices as of the close of such
exchanges. Options, which are traded on exchanges, are valued at
their last sale price as of the close of such exchanges or,
lacking any sales, at the last available bid price. Securities
and assets for which market quotations are not readily available
are valued at fair value as determined in good faith by or under
the direction of the Board of Trustees of the Trust, including
valuations furnished by a pricing service retained by the Trust,
which may utilize a matrix system for valuations. The procedures
of the pricing service and its valuations are reviewed by the
officers of the Trust under the general supervision of the
Trustees.
<PAGE>
(b) Financial futures contracts--The Fund may purchase or sell
interest rate futures contracts and options on such futures
contracts for the purpose of hedging the market risk on existing
securities or the intended purchase of securities. Futures
contracts are contracts for delayed delivery of securities at a
specific future date and at a specific price or yield. Upon
entering into a contract, the Fund deposits and maintains as
collateral such initial margin as required by the exchange on
which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of
cash equal to the daily fluctuation in value of the contract.
Such receipts or payments are known as variation margin and are
recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss
equal to the difference between the value of the contract at the
time it was opened and the value at the time it was closed.
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income
tax provision is required.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are
entered into (the trade dates). Interest income is recognized on
the accrual basis. Original issue discounts and market premiums
are amortized into interest income. Realized gains and losses on
security transactions are determined on the identified cost
basis.
(e) Deferred organization expenses and prepaid registration
fees--Deferred organization expenses are charged to expense on a
straight-line basis over a five-year period. Prepaid registration
fees are charged to expense as the related shares are issued.
NOTES TO FINANCIAL STATEMENTS (concluded)
(f) Dividends and distributions--Dividends from net investment
income are declared daily and paid monthly. Distributions of
capital gains are recorded on the ex-dividend dates.
<PAGE>
2. Investment Advisory Agreement and Transactions with
Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Fund Asset Management, L.P. ("FAM"). Effective January 1, 1994,
the investment advisory business of FAM was reorganized from a
corporation to a limited partnership. Both prior to and after the
reorganization, ultimate control of FAM was vested with Merrill
Lynch & Co., Inc. ("ML & Co."). The general partner of FAM is
Princeton Services, Inc., an indirect wholly-owned subsidiary of
ML & Co. The limited partners are ML & Co. and Merrill Lynch
Investment Management, Inc. ("MLIM"), which is also an indirect
wholly-owned subsidiary of ML & Co. The Fund has also entered
into Distribution Agreements and a Distribution Plan with Merrill
Lynch Funds Distributor, Inc. ("MLFD" or "Distributor"), a
wholly-owned subsidiary of MLIM.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and
certain other services necessary to the operations of the Fund.
For such services, the Fund pays a monthly fee based upon the
average daily value of the Fund's net assets at the following
annual rates: 0.55% of the Fund's average daily net assets not
exceeding $500 million; 0.525% of average daily net assets in
excess of $500 million but not exceeding $1 billion; and 0.50% of
average daily net assets in excess of $1 billion. The Investment
Advisory Agreement obligates FAM to reimburse the Fund to the
extent the Fund's expenses (excluding interest, taxes,
distribution fees, brokerage fees and commissions, and
extraordinary items) exceed 2.5% of the Fund's first $30 million
of average daily net assets, 2.0% of the next $70 million of
average daily net assets and 1.5% of the average daily net assets
in excess thereof. FAM's obligation to reimburse the Fund is
limited to the amount of the management fee. No fee payment will
be made during any fiscal year which will cause such expenses to
exceed expense limitation at the time of such payment. For the
six months ended January 31, 1994, FAM had management fees of
$288,571, of which $132,119 was waived.
Pursuant to a distribution plan (the "Distribution Plan") adopted
by the Fund under Rule 12b-1 under the Investment Company Act of
1940, the Fund pays the Distributor ongoing account maintenance
and distribution fees relating to Class B Shares which are
accrued daily and paid monthly at the annual rates of 0.25% and
0.25%, respectively, of the average daily net assets of the Class
B Shares of the Fund. This fee is to compensate the Distributor
for services provided and the expenses borne by the Distributor
under the Distribution Agreement. As authorized by the Plan, the
Distributor has entered into an agreement with Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), an affiliate of FAM,
which provides for the compensation of MLPF&S for providing
distribution-related services to the Fund.
For the six months ended January 31, 1994, MLFD earned
underwriting discounts of $4,149, and MLPF&S earned dealer
concessions of $56,104 on sales of the Fund's Class A Shares.
<PAGE>
MLPF&S also received contingent deferred sales charges of $62,249
for the sale of Class B Shares during the period.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary
of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of FAM, MLIM, MLFD, FDS, MLPF&S and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term
securities, for the six months ended January 31, 1994 were
$43,637,359 and $32,082,047, respectively.
Net realized and unrealized gains (losses) as of January 31, 1994
were as follows:
Realized
Gains Unrealized
(Losses) Gains
Long-term investments $1,386,080 $7,922,489
Short-term investments -- 594,000
Financial futures contracts (85,844) --
---------- ----------
Total $1,300,236 $8,516,489
========== ==========
As of January 31, 1994, net unrealized appreciation for Federal
income tax purposes aggregated $8,516,489, of which $8,529,371
related to appreciated securities and $12,882 related to
depreciated securities. The aggregate cost of investments at
January 31, 1994 for Federal income tax purposes was
$101,321,702.
4. Beneficial Interest Transactions:
Net increase in net assets derived from beneficial interest
transactions was $10,308,701 and $22,046,923 for the six months
ended January 31, 1994 and the year ended July 31, 1993,
respectively.
Transactions in shares of beneficial interest for Class A and
Class B Shares were as follows:
Class A Shares for the Six Months Dollar
Ended January 31, 1994 Shares Amount
Shares sold 395,098 $ 4,397,173
Shares issued to shareholders
in reinvestment of dividends
and distributions 39,981 444,829
<PAGE> --------- -----------
Total issued 435,079 4,842,002
Shares redeemed (79,021) (886,356)
--------- -----------
Net increase 356,058 $ 3,955,646
========= ===========
Class A Shares for the Year Dollar
Ended July 31,1993 Shares Amount
Shares sold 584,723 $ 6,243,131
Shares issued to shareholders
in reinvestment of dividends
and distributions 48,118 511,965
--------- -----------
Total issued 632,841 6,755,096
Shares redeemed (354,895) (3,778,384)
--------- -----------
Net increase 277,946 $ 2,976,712
========= ===========
Class B Shares for the
Six Months Ended Dollar
January 31, 1994 Shares Amount
Shares sold 885,179 $ 9,895,169
Shares issued to shareholders
in reinvestment of dividends
and distributions 143,542 1,596,303
--------- -----------
Total issued 1,028,721 11,491,472
Shares redeemed (459,831) (5,138,417)
--------- -----------
Net increase 568,890 $ 6,353,055
========= ===========
Class B Shares for the Year Dollar
Ended July 31,1993 Shares Amount
Shares sold 2,432,048 $25,974,673
Shares issued to shareholders
in reinvestment of dividends
and distributions 163,371 1,737,881
--------- -----------
Total issued 2,595,419 27,712,554
Shares redeemed (806,190) (8,642,343)
--------- -----------
Net increase 1,789,229 $19,070,211
========= ===========
