MERRILL LYNCH
ARIZONA
MUNICIPAL
BOND FUND
FUND LOGO
Semi-Annual Report
January 31, 1996
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Statements and other information herein are as dated and are subject
to change.
<PAGE>
Merrill Lynch Arizona
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, NJ
08543-9011
TO OUR SHAREHOLDERS
Although the partial shutdown of the US Government curtailed the
release of most economic data in the latter part of the six-month
period ended January 31, 1996, it was nonetheless apparent that
gross domestic product (GDP) growth was losing momentum. Consumer
spending is barely growing, the industrial sector is at a virtual
standstill and, despite lower mortgage rates, there is little or no
pick-up in housing activity. With inflationary pressures subdued,
the Federal Reserve Board responded to the slowing economy by
continuing to modestly lower short-term interest rates.
Historically, it has taken some time for shifts in monetary policy
to have an impact on economic growth. Therefore, the Federal Reserve
Board's gradual shift to lowering interest rates, which began early
last year, may not be reflected in a pick-up in real economic growth
until later this year.
<PAGE>
The impasse between the Clinton Administration and Congress over the
Federal budget continues, although both sides have made concessions
since the debate began. It appears that investors are currently
focusing on the progress that has been made rather than on the
differences that remain. Initially, President Clinton proposed
deficits of about $190 billion annually through fiscal year 2002,
but now proposes balanced budgets, as do the Republicans. Current
indications are that a piecemeal budget accord is the most likely
outcome. Even without the proposed policy changes, it appears that
the US Federal budget deficit would remain stable at about 2% of GDP
for the rest of the decade. This would be far better than is the
case for most Group of Seven industrial nations, and for the United
States would represent a great improvement over the last 15 years.
Although this may fall short of investors' best expectations, it
appears that the Federal budget debate over the past year has
resulted in a trend toward a more conservative fiscal policy.
The Municipal Market
The municipal bond market rallied strongly during the six months
ended January 31, 1996. Long-term, tax-exempt revenue bond yields,
as measured by the Bond Buyer Revenue Bond Index, declined over 65
basis points (0.65%) to end the January period at 5.69%. Continued
weak economic conditions coupled with low inflation fostered a very
positive environment for almost all fixed-income investments during
the last three months of 1995. Long-term US Treasury bond yields
also declined approximately 65 basis points to 6.00% by January 31,
1996. Both US Treasury and long-term tax-exempt bond yields are near
their lowest levels in the past two years.
The municipal bond market had to contend with a number of
difficulties for much of 1995. Various tax reform proposals have
made the future tax advantage of municipal bonds uncertain. This
has, at a minimum, reduced the overall demand for tax-exempt
securities. At the same time, as municipal bond yields declined, tax-
exempt authorities have rushed to issue debt at near historic low
yield levels. During the six-month period ended January 31, 1996,
approximately $90 billion in municipal securities were underwritten,
an increase of over 30% compared to the same period last year.
However, as early 1995 issuance was significantly reduced, the last
12 months issuance of approximately $160 billion remained the same
as that issued a year earlier. Tax-exempt bond yields declined
throughout the six months ended January 31, 1996, despite investor
uncertainty and increased supply pressures.
<PAGE>
It is likely that the municipal market will regain much of the
technical support it enjoyed earlier in 1995. 1995 issuance remained
significantly below levels underwritten in 1993, when over $290
billion in long-term tax-exempt securities were issued. Also,
municipal investors received over $25 billion in bond maturities,
coupon income and early redemptions on January 1, 1996. This $25
billion is almost twice the average monthly issuance for 1995. The
amount of outstanding municipal securities will continue to decline
throughout 1996 and into early 1997. As the uncertainties
surrounding proposed tax reforms are resolved in 1996, the tax-
exempt bond market's renewed technical position should provide
support to municipal bond prices.
Many of the features that made tax-exempt products attractive to
investors last year are still in place. Long-term, A-rated municipal
revenue bonds continue to yield well over 90% of comparable US
Treasury bond yields. Historically, analysts have considered yields
in excess of 82% attractive for long-term investors. For example,
currently available tax-exempt bond yields generate taxable
equivalent yields in excess of 8.50% for an investor in the 36%
Federal income tax bracket. While the uncertainties regarding
potential changes in current tax law remain, it appears that long-
term municipal investors are being well compensated for the present
instability.
Looking ahead, it may be unreasonable to expect to duplicate the
double-digit returns produced by most tax-exempt issues in 1995,
given current municipal bond yields. Municipal bond yields would
have to decline to levels not seen since the 1960s in order to
generate such significant returns in the coming years. While the
current economic environment may still justify additional declines
in interest rates, it may be prudent to expect some period of
consolidation before the interest rate decline resumes. Tax-exempt
bond market performance in 1996 is likely to be generated more by
enhancing current income and limiting credit risk than by
significant interest rate declines.
Portfolio Strategy
Merrill Lynch Arizona Municipal Bond Fund continues to benefit from
lower interest rates and higher bond prices. Throughout the six
months ended January 31, 1996, the Fund remained fully invested and
focused on high-quality performance-oriented municipal bonds. Credit
quality remains a factor when considering Fund investments, as 93%
of the portfolio's total assets are currently rated A or better by
at least one of the major rating services.
We also seek to provide an attractive total return to shareholders.
We look to achieve this by selling par municipal bonds and buying
discount coupon municipal bonds to increase the portfolio's
opportunities to benefit from bond appreciation. We believe that
interest rates will continue to fall, therefore the portfolio
strategy utilized during the six months ended January 31, 1996 will
remain in place.
<PAGE>
In Conclusion
We appreciate your ongoing interest in Merrill Lynch Arizona
Municipal Bond Fund, and we look forward to serving your investment
needs in the months and years to come.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Vice President
(Hugh T. Hurley III)
Hugh T. Hurley III
Portfolio Manager
March 8, 1996
We are pleased to announce that Hugh T. Hurley III is responsible
for the day-to-day management of Merrill Lynch Arizona Municipal
Bond Fund. Mr. Hurley has been employed by Merrill Lynch Asset
Management, L.P. (an affiliate of the Fund's investment adviser)
since 1996 as Vice President and was Assistant Vice President from
1993 to 1996. Prior thereto, he was a Municipal Bond Broker with
Titus and Donnelly Municipal Bond Brokers from 1990 to 1993.
PERFORMANCE DATA
About Fund Performance
<PAGE>
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 4% and bear no ongoing distribution or account maintenance
fees. Class A Shares are available only to eligible investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.25% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after approximately 10 years.
* Class C Shares are subject to a distribution fee of 0.35% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 4% and an
account maintenance fee of 0.10% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. 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.
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month
1/31/96 10/31/95 1/31/95 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $10.96 $10.73 $10.11 + 8.41% +2.14%
Class B Shares* 10.96 10.73 10.11 + 8.41 +2.14
Class C Shares* 10.95 10.73 10.10 + 8.42 +2.05
Class D Shares* 10.95 10.72 10.10 + 8.42 +2.15
Class A Shares--Total Return* +14.12(1) +3.41(2)
Class B Shares--Total Return* +13.54(3) +3.28(4)
Class C Shares--Total Return* +13.43(5) +3.17(6)
Class D Shares--Total Return* +14.01(7) +3.39(8)
Class A Shares--Standardized 30-day Yield 4.10%
Class B Shares--Standardized 30-day Yield 3.76%
Class C Shares--Standardized 30-day Yield 3.67%
Class D Shares--Standardized 30-day Yield 4.00%
<PAGE>
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
(1)Percent change includes reinvestment of $0.545 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.135 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.491 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.122 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.480 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.119 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.534 per share ordinary
income dividends.
(8)Percent change includes reinvestment of $0.133 per share ordinary
income dividends.
</TABLE>
PERFORMANCE DATA (continued)
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <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 +10.01
1993 10.49 11.07 $0.065 0.739 +13.48
1994 11.07 9.79 0.054 0.568 - 6.03
1995 9.79 10.98 -- 0.545 +18.11
1/1/96--1/31/96 10.98 10.96 -- 0.032 + 0.20
------ ------
Total $0.119 Total $2.677
Cumulative total return as of 1/31/96: +42.88%**
<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**
<S> <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 + 9.45
1993 10.49 11.07 $0.065 0.684 +12.91
1994 11.07 9.79 0.054 0.516 - 6.50
1995 9.79 10.98 -- 0.492 +17.52
1/1/96--1/31/96 10.98 10.96 -- 0.028 + 0.17
------ ------
Total $0.119 Total $2.455
Cumulative total return as of 1/31/96: +39.92%**
<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>
<TABLE>
Performance Summary--Class C Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $10.05 $ 9.79 $0.054 $0.091 - 1.13%
1995 9.79 10.98 -- 0.480 +17.39
1/1/96--1/31/96 10.98 10.95 -- 0.028 + 0.07
------ ------
Total $0.054 Total $0.599
Cumulative total return as of 1/31/96: +16.15%**
<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>
<PAGE>
PERFORMANCE DATA (concluded)
<TABLE>
Performance Summary--Class D Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $10.05 $ 9.78 $0.054 $0.107 - 1.07%
1995 9.78 10.97 -- 0.534 +18.01
1/1/96--1/31/96 10.97 10.95 -- 0.031 + 0.19
------ ------
Total $0.054 Total $0.672
Cumulative total return as of 1/31/96: +16.97%**
<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>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/95 +18.11% +13.39%
Inception (11/29/91)
through 12/31/95 + 9.06 + 7.98
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
<PAGE>
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/95 +17.52% +13.52%
Inception (11/29/91)
through 12/31/95 + 8.51 + 8.51
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 12/31/95 +17.39% +16.39%
Inception (10/21/94)
through 12/31/95 +13.29 +13.29
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 12/31/95 +18.01% +13.29%
Inception (10/21/94)
through 12/31/95 +13.84 +10.02
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
<PAGE>
PORTFOLIO ABBREVIATIONS
To simplify the listings of Merrill Lynch Arizona Municipal Bond
Fund's portfolio holdings in the Schedule of Investments, we have
abbreviated the names of many of the securities according to the
list below and at right.
AMT Alternative Minimum Tax (subject to)
DATES Daily Adjustable Tax-Exempt Securities
GO General Obligation Bonds
IDA Industrial Development Authority
IDR Industrial Development Revenue Bonds
LEVRRS Leveraged Reverse Rate Securities
PCR Pollution Control Revenue Bonds
UT Unlimited Tax
YCN Yield Curve Notes
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Arizona--89.2%
<S> <S> <C> <S> <C>
Arizona Educational Loan Marketing Corporation, Educational Loan
Revenue Bonds, AMT, Series B:
NR* A $1,600 7% due 3/01/2003 $ 1,737
NR* A 1,100 7% due 3/01/2005 1,158
NR* A 750 Arizona Educational Loan Marketing Corporation, Educational Loan
Revenue Bonds, AMT, Sub-Series, 6.625% due 9/01/2005 792
NR* Aaa 2,305 Arizona Health Facilities Authority, Hospital Systems Revenue Refunding
Bonds (Saint Luke's Health Systems), 7.25% due 11/01/2003 (h) 2,704
AAA Aaa 1,725 Arizona State Power Authority, Power Resource Revenue Refunding Bonds
(Hoover Uprating Project), 5.25% due 10/01/2017 (d) 1,709
AAA Aaa 6,050 Arizona State Transportation Board, Excise Tax Revenue Bonds (Maricopa
County Regional Area Road), Series A, 5.40% due 7/01/2001 6,416
AA Aa 1,660 Arizona State Transportation Board, Highway Revenue Refunding Bonds,
Sub-Series A, 5% due 7/01/2010 1,674
AAA Aaa 700 Arizona State University, Research Park Development, Revenue Refunding
Bonds, 5% due 7/01/2021 (d) 672
<PAGE>
AA+ Aa 2,000 Arizona State Wastewater Management Authority, Wastewater Treatment
Financial Assistance Revenue Bonds, 6.80% due 7/01/2011 2,252
NR* Aa 2,000 Arizona Student Loan Acquisition Authority, Student Loan Revenue Bonds,
AMT, Senior Series B, 6.60% due 5/01/2010 2,069
AAA Aaa 700 Avondale, Arizona, Municipal Development Corporation, Municipal
Facilities Revenue Bonds, 6.625% due 7/01/2011(d) 772
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 216
A- Baa1 250 6.75% due 7/01/2007 273
</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>
AAA Aaa $3,620 Gilbert, Arizona, Water and Sewer Revenue Refunding Bonds, 6.50% due
7/01/2022 (b) $ 4,071
AAA NR* 1,000 Glendale, Arizona, IDA, Educational Facilities Revenue Refunding Bonds
(American Graduate School International), 7.125% due 7/01/2020 (g) 1,165
AAA Aaa 4,500 Maricopa County, Arizona, Elementary School District No. 68, Revenue
Refunding Bonds (Alhambra), Series A, UT, 6.75% due 7/01/2014 (f) 5,155
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) 2,283
Maricopa County, Arizona, IDA, Hospital Facilities Revenue Refunding
Bonds:
AAA Aaa 2,800 (John C. Lincoln Hospital), 7.50% due 12/01/2013 (c) 3,194
AAA Aaa 750 (Samaritan Health Service Hospital), Series A, 7% due 12/01/2013 (d) 840
Maricopa County, Arizona, Unified School District No. 69, Paradise
Valley, UT (d):
AAA Aaa 3,100 Project of 1994-Series B, 5.25% due 7/01/2015 3,100
AAA Aaa 1,500 Refunding Bonds, 5.30% due 7/01/2011 1,546
NR* NR* 2,000 Mohave County, Arizona, IDA, IDR (North Star Steel Co. Project), AMT,
6.70% due 3/01/2020 2,173
<PAGE>
AAA Aaa 1,325 Mohave County, Arizona, Unified High School District No. 30, Mohave
Refunded Bonds, Series B, UT, 6.70% due 7/01/2001 (b)(h) 1,500
Peoria, Arizona, Improvement District No. 8802, Special Assessment Bonds:
BBB NR* 430 7.20% due 1/01/2010 471
BBB NR* 510 7.20% due 1/01/2013 555
Peoria, Arizona, Improvement District, Special Assessment Bonds
(North Valley Power Center No. 8801):
BBB NR* 200 7.30% due 1/01/2009 221
BBB NR* 395 7.30% due l/01/2011 434
AAA Aaa 1,000 Peoria, Arizona, Water and Sewer Revenue Refunding Bonds, 6.625% due
7/01/2006 (b) 1,095
AA+ Aa 2,000 Phoenix, Arizona, Civic Improvement Corporation, Excise Tax Revenue Bonds
(New City Hall Project), Senior Lien, 5.10% due 7/01/2018 1,933
AAA Aaa 2,000 Phoenix, Arizona, Civic Improvement Corporation, Municipal Facilities
Excise Tax Revenue Bonds, 6.90% due 7/01/2021 (d) 2,304
Phoenix, Arizona, Civic Improvement Corporation, Wastewater System, Lease
Revenue Refunding Bonds:
A A1 3,000 5% due 7/01/2018 2,845
AAA Aaa 1,000 5% due 7/01/2018 (d) 972
Phoenix, Arizona, GO, Refunding, Series A, UT:
AA+ Aa1 1,000 5.25% due 7/01/2012 1,012
AA+ Aa1 1,400 6.25% due 7/01/2017 1,614
Pima County, Arizona, Sewer Revenue Refunding Bonds (b):
AAA Aaa 950 6.75% due 7/01/2015 1,057
AAA Aaa 1,000 Series A, 5% due 7/01/2015 972
A1+ P1 400 Pinal County, Arizona, IDA, PCR (Magma Copper/Newmont Mining Corporation),
DATES, 3.80% due 12/01/2009 (e) 400
BBB NR* 750 Prescott Valley, Arizona, Improvement District, Special Assessment
Sewer Collection System, Roadway Repair Revenue Bonds, 7.90% due 1/01/2012 850
</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>
AA Aa $4,000 Salt River Project, Arizona, Agricultural Improvement and Power District,
Electric System Revenue Bonds, Series A, 6.50% due 1/01/2022 $ 4,332
BBB NR* 1,600 Sedona, Arizona, Sewer Revenue Refunding Bonds, 7% due 7/01/2012 1,761
AAA Aaa 500 Tucson, Arizona, Airport Authority Revenue Bonds, AMT, Series B, 7.25%
due 6/01/2020 (d) 554
AAA Aaa 1,500 Tucson, Arizona, GO, Refunding, 6.50% due 7/01/2002 (b) 1,689
A+ NR* 1,650 Tucson, Arizona, Water Revenue Bonds, Series D, 6.75% due 7/01/2001 (h) 1,881
Tucson, Arizona, Water Revenue Refunding Bonds:
A+ A1 1,250 6.50% due 7/01/2016 1,352
A+ A1 1,000 5.25% due 7/01/2018 993
University of Arizona Revenue Bonds:
AA A1 2,000 Refunding, Series A, 6.20% due 6/01/2016 2,263
AA NR* 1,570 Series B, 6.90% due 6/01/2000 (h) 1,772
Puerto Rico--8.2%
AAA Baa1 3,000 Puerto Rico Commonwealth, Aqueduct and Sewer Authority Revenue Bonds,
Series A, 7% due 7/01/1998 (h) 3,285
AAA Aaa 2,000 Puerto Rico Commonwealth, YCN, 7.382% due 7/01/2020 (a)(c) 2,127
AAA Aaa 1,900 Puerto Rico Electric Power Authority, Power Revenue Bonds, LEVRRS,
7.87% due 7/01/2023 (a)(c) 2,033
Total Investments (Cost--$81,133)--97.4% 88,248
Other Assets Less Liabilities--2.6% 2,350
-------
Net Assets--100.0% $90,598
=======
<PAGE>
<FN>
(a)The interest rate is subject to change periodically and inversely
based upon prevailing market rates. The interest rate shown is the
rate in effect at January 31, 1996.
(b)FGIC Insured.
(c)FSA Insured.
(d)MBIA Insured.
(e)The interest rate is subject to change periodically based upon
the prevailing market rates. The interest rate shown is the rate in
effect at January 31, 1996.
(f)AMBAC Insured.
(g)Insured by Connie Lee.
(h)Prerefunded.
*Not Rated.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of January 31, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$81,132,598) (Note 1a) $ 88,248,247
Cash 991,173
Receivables:
Securities sold $ 956,499
Interest 716,099
Beneficial interest sold 43,592 1,716,190
------------
Deferred organization expenses (Note 1e) 19,842
Prepaid expenses (Note 1e) 12,110
------------
Total assets 90,987,562
------------
Liabilities: Payables:
Beneficial interest redeemed 116,782
Dividends to shareholders (Note 1f) 102,262
Investment adviser (Note 2) 41,872
Distributor (Note 2) 29,631 290,547
------------
Accrued expenses 98,723
------------
Total liabilities 389,270
------------
Net Assets: Net assets $ 90,598,292
============
<PAGE>
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited
Consist of: number of shares authorized $ 139,958
Class B Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized 665,181
Class C Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized 12,078
Class D Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized 9,540
Paid-in capital in excess of par 84,285,385
Accumulated realized capital losses on investments--net (Note 5) (1,629,499)
Unrealized appreciation on investments--net 7,115,649
------------
Net assets $ 90,598,292
============
Net Asset Value: Class A--Based on net assets of $15,336,815 and 1,399,584 shares
of beneficial interest outstanding $ 10.96
============
Class B--Based on net assets of $72,893,900 and 6,651,810 shares
of beneficial interest outstanding $ 10.96
============
Class C--Based on net assets of $1,323,106 and 120,781 shares
of beneficial interest outstanding $ 10.95
============
Class D--Based on net assets of $1,044,471 and 95,396 shares
of beneficial interest outstanding $ 10.95
============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Six Months Ended
January 31, 1996
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 2,665,609
(Note 1d):
<PAGE>
Expenses: Investment advisory fees (Note 2) $ 249,791
Account maintenance and distribution fees--Class B (Note 2) 183,828
Professional fees 27,661
Printing and shareholder reports 21,054
Accounting services (Note 2) 20,608
Transfer agent fees--Class B (Note 2) 20,439
Amortization of organization expenses (Note 1e) 7,675
Pricing fees 4,237
Registration fees (Note 1e) 4,037
Custodian fees 3,615
Transfer agent fees--Class A (Note 2) 3,597
Account maintenance and distribution fees--Class C (Note 2) 3,496
Trustees' fees and expenses 2,371
Account maintenance fees--Class D (Note 2) 416
Transfer agent fees--Class D (Note 2) 321
Transfer agent fees--Class C (Note 2) 194
Other 1,549
------------
Total expenses 554,889
------------
Investment income--net 2,110,720
------------
Realized & Realized gain on investments--net 893,151
Unrealized Change in unrealized appreciation on investments--net 3,303,195
Gain on ------------
Investments Net Increase in Net Assets Resulting from Operations $ 6,307,066
- --Net (Notes 1b, ============
1d & 3):
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the
Six Months For the
Ended Year Ended
January 31, July 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 2,110,720 $ 4,577,301
Realized gain (loss) on investments--net 893,151 (2,172,813)
Change in unrealized appreciation on investments--net 3,303,195 2,791,773
------------ ------------
Net increase in net assets resulting from operations 6,307,066 5,196,261
------------ ------------
<PAGE>
Dividends & Investment income--net:
Distributions to Class A (387,792) (906,229)
Shareholders Class B (1,676,362) (3,649,429)
(Note 1f): Class C (25,921) (7,364)
Class D (20,645) (14,279)
Realized gain on investments--net:
Class A -- (23,660)
Class B -- (103,854)
Class C -- (13)
Class D -- (245)
In excess of realized gain on investments--net:
Class A -- (64,782)
Class B -- (284,350)
Class C -- (34)
Class D -- (671)
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (2,110,720) (5,054,910)
------------ ------------
Beneficial Net decrease in net assets derived from beneficial
Interest interest transactions (1,927,033) (10,791,148)
Transactions ------------ ------------
(Note 4):
Net Assets: Total increase (decrease) in net assets 2,269,313 (10,649,797)
Beginning of period 88,328,979 98,978,776
------------ ------------
End of period $ 90,598,292 $ 88,328,979
============ ============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<PAGE>
<TABLE>
Financial Highlights
<CAPTION>
Class A
For the For the
Six Period
The following per share data and ratios have been derived Months Nov. 29,
from information provided in the financial statements. Ended 1991++ to
Jan. 31, For the Year Ended July 31, July 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.46 $ 10.40 $ 11.01 $ 10.74 $ 10.00
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .27 .55 .57 .60 .41
Realized and unrealized gain (loss) on
investments--net .50 .11 (.39) .39 .74
-------- -------- -------- -------- --------
Total from investment operations .77 .66 .18 .99 1.15
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.27) (.55) (.57) (.60) (.41)
Realized gain on investments--net -- (.01) (.22) (.12) --
In excess of realized gain on
investments--net -- (.04) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.27) (.60) (.79) (.72) (.41)
-------- -------- -------- -------- --------
Net asset value, end of period $ 10.96 $ 10.46 $ 10.40 $ 11.01 $ 10.74
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 7.44%+++ 6.76% 1.62% 9.62% 11.82%+++
Return:** ======== ======== ======== ======== ========
Ratios to Expenses, net of reimbursement .80%* .80% .56% .41% .22%*
Average ======== ======== ======== ======== ========
Net Assets: Expenses .80%* .83% .80% .81% .98%*
======== ======== ======== ======== ========
Investment income--net 5.05%* 5.44% 5.32% 5.57% 5.99%*
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 15,337 $ 14,893 $ 18,363 $ 17,988 $ 14,564
Data: ======== ======== ======== ======== ========
Portfolio turnover 30.60% 62.65% 53.35% 73.48% 66.50%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<PAGE>
<TABLE>
Financial Highlights (continued)
<CAPTION>
Class B
For the For the
Six Period
The following per share data and ratios have been derived Months Nov. 29,
from information provided in the financial statements. Ended 1991++ to
Jan. 31, For the Year Ended July 31, July 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.46 $ 10.40 $ 11.01 $ 10.74 $ 10.00
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .25 .50 .52 .54 .38
Realized and unrealized gain (loss) on
investments--net .50 .11 (.39) .39 .74
-------- -------- -------- -------- --------
Total from investment operations .75 .61 .13 .93 1.12
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.25) (.50) (.52) (.54) (.38)
Realized gain on investments--net -- (.01) (.22) (.12) --
In excess of realized gain on
investments--net -- (.04) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.25) (.55) (.74) (.66) (.38)
-------- -------- -------- -------- --------
Net asset value, end of period $ 10.96 $ 10.46 $ 10.40 $ 11.01 $ 10.74
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 7.17%+++ 6.22% 1.11% 9.07% 11.45%+++
Return:** ======== ======== ======== ======== ========
Ratios to Expenses, net of reimbursement 1.31%* 1.31% 1.07% .92% .74%*
Average ======== ======== ======== ======== ========
Net Assets: Expenses 1.31%* 1.33% 1.30% 1.32% 1.47%*
======== ======== ======== ======== ========
Investment income--net 4.55%* 4.92% 4.82% 5.06% 5.48%*
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands). $ 72,894 $ 72,090 $ 80,616 $ 81,078 $ 59,881
Data: ======== ======== ======== ======== ========
Portfolio turnover 30.60% 62.65% 53.35% 73.48% 66.50%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class C Class D
For the For the For the For the
Six Period Six Period
The following per share data and ratios have been derived Months Oct. 21, Months Oct. 21,
from information provided in the financial statements. Ended 1994++ to Ended 1994++ to
Jan. 31, July 31, Jan. 31, July 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1996 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.46 $ 10.05 $ 10.45 $ 10.05
Operating -------- -------- -------- --------
Performance: Investment income--net .24 .37 .27 .42
Realized and unrealized gain on investments--net .49 .46 .50 .45
-------- -------- -------- --------
Total from investment operations .73 .83 .77 .87
-------- -------- -------- --------
Less dividends and distributions
Investment income--net (.24) (.37) (.27) (.42)
Realized gain on investments--net -- (.01) -- (.01)
In excess of realized gain on investments--net -- (.04) -- (.04)
-------- -------- -------- --------
Total dividends and distributions (.24) (.42) (.27) (.47)
-------- -------- -------- --------
Net asset value, end of period $ 10.95 $ 10.46 $ 10.95 $ 10.45
======== ======== ======== ========
Total Investment Based on net asset value per share 7.02%+++ 8.53%+++ 7.39%+++ 8.92%+++
Return:** ======== ======== ======== ========
Ratios to Average Expenses 1.40%* 1.43%* .90%* .93%*
Net Assets: ======== ======== ======== ========
Investment income--net 4.44%* 4.58%* 4.94%* 5.23%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 1,323 $ 729 $ 1,044 $ 617
Data: ======== ======== ======== ========
Portfolio turnover 30.60% 62.65% 30.60% 62.65%
======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
<PAGE>
See Notes to Financial Statements.
</TABLE>
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. These unaudited
financial statements reflect all adjustments which are, in the
opinion of management, necessary to a fair statement of the results
for the interim period presented. All such adjustments are of a
normal recurring nature. The Fund offers four classes of shares
under the Merrill Lynch Select Pricing SM System. Shares of Class A
and Class D are sold with a front-end sales charge. Shares of Class
B and Class C may be subject to a contingent deferred sales charge.
All classes of shares have identical voting, dividend, liquidation
and other rights and the same terms and conditions, except that
Class B, Class C and Class D Shares bear certain expenses related to
the account maintenance of such shares, and Class B and Class C
Shares also bear certain expenses related to the distribution of
such shares. Each class has exclusive voting rights with respect to
matters relating to its account maintenance and distribution
expenditures. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments--Municipal bonds and other portfolio
securities in which the Fund invests are traded primarily in the
over-the-counter municipal bond and money markets and are valued at
the last available bid price in the over-the-counter market or on
the basis of yield equivalents as obtained from one or more dealers
that make markets in the securities. Financial futures contracts and
options thereon, which are traded on exchanges, are valued at their
settlement prices as of the close of such exchanges. Short-term
investments with remaining maturities of sixty days or less are
valued at amortized cost, which approximates market value.
Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or
under the direction of the Board of Trustees of the Trust, including
valuations furnished by a pricing service retained by the Trust,
which may utilize a matrix system for valuations. The procedures of
the pricing service and its valuations are reviewed by the officers
of the Trust under the general supervision of the Trustees.
<PAGE>
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
* 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. Discounts and market premiums are amortized into interest
income. Realized gains and losses on security transactions are
determined on the identified cost basis.
NOTES TO FINANCIAL STATEMENTS (continued)
(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.
(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. Distributions in excess
of realized capital gains are due primarily to differing tax
treatments for futures transactions and post-October losses.
<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"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee based upon the average daily
value of the Fund's net assets at the following annual rates: 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 to FAM during any fiscal year which will cause such expenses
to exceed expense limitation at the time of payment.
Pursuant to the distribution plans (the "Distribution Plans")
adopted by the Fund in accordance with Rule 12b-1 under the
Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are
accrued daily and paid monthly at annual rates based upon the
average daily net assets of the shares as follows:
Account
Maintenance Distribution
Fee Fee
Class B 0.25% 0.25%
Class C 0.25% 0.35%
Class D 0.10% --
<PAGE>
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
also provides account maintenance and distribution services to the
Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
For the six months ended January 31, 1996, MLFD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the
Fund's Class A and Class D Shares as follows:
MLFD MLPF&S
Class A $737 $5,920
Class D $113 $1,666
For the six months ended January 31, 1996, MLPF&S received
contingent deferred sales charges of $90,430 and $340 relating to
transactions in Class B and Class C Shares, respectively.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-
owned subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of FAM, PSI, MLPF&S, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended January 31, 1996 were $26,684,563 and
$27,825,873, respectively.
Net realized and unrealized gains as of January 31, 1996 were as
follows:
<PAGE>
Realized Unrealized
Gains Gains
Long-term investments $ 746,426 $ 7,115,649
Financial futures contracts 146,725 --
------------- ------------
Total $ 893,151 $ 7,115,649
============= ============
As of January 31, 1996, net unrealized appreciation for Federal
income tax purposes aggregated $7,115,649, all of which related to
appreciated
securities. The aggregate cost of investments at January 31, 1996
for Federal income tax purposes was $81,132,598.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest
transactions was $1,927,033 and $10,791,148 for the six months ended
January 31, 1996 and for the year ended July 31, 1995, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Six Months Dollar
Ended January 31, 1996 Shares Amount
Shares sold 99,021 $ 1,041,790
Shares issued to shareholders
in reinvestment of dividends 18,293 196,198
------------- ------------
Total issued 117,314 1,237,988
Shares redeemed (141,155) (1,505,278)
------------- ------------
Net decrease (23,841) $ (267,290)
============= ============
Class A Shares for the Year Dollar
Ended July 31, 1995 Shares Amount
Shares sold 187,774 $ 1,903,153
Shares issued to shareholders
in reinvestment of dividends
and distributions 43,703 443,793
------------- ------------
Total issued 231,477 2,346,946
Shares redeemed (573,315) (5,830,865)
------------- ------------
Net decrease (341,838) $ (3,483,919)
============= ============
<PAGE>
Class B Shares for the Six Months Dollar
Ended January 31, 1996 Shares Amount
Shares sold 643,892 $ 6,895,739
Shares issued to shareholders
in reinvestment of dividends 62,010 664,694
------------- ------------
Total issued 705,902 7,560,433
Shares redeemed (944,272) (10,148,759)
------------- ------------
Net decrease (238,370) $ (2,588,326)
============= ============
NOTES TO FINANCIAL STATEMENTS (concluded)
Class B Shares for the Year Dollar
Ended July 31, 1995 Shares Amount
Shares sold 981,663 $ 10,018,567
Shares issued to shareholders
in reinvestment of dividends
and distributions 142,045 1,444,428
------------- ------------
Total issued 1,123,708 11,462,995
Shares redeemed (1,983,196) (20,087,313)
------------- ------------
Net decrease (859,488) $ (8,624,318)
============= ============
Class C Shares for the Six Months Dollar
Ended January 31, 1996 Shares Amount
Shares sold 53,296 $ 563,940
Shares issued to shareholders
in reinvestment of dividends 1,679 18,025
------------- ------------
Total issued 54,975 581,965
Shares redeemed (3,890) (42,084)
------------- ------------
Net increase 51,085 $ 539,881
============= ============
<PAGE>
Class C Shares for the Period
October 21, 1994++ to Dollar
July 31, 1995 Shares Amount
Shares sold 69,910 $ 729,055
Shares issued to shareholders
in reinvestment of dividends
& distributions 513 5,375
------------- ------------
Total issued 70,423 734,430
Shares redeemed (727) (7,648)
------------- ------------
Net increase 69,696 $ 726,782
============= ============
[FN]
++Commencement of Operations.
Class D Shares for the Six Months Dollar
Ended January 31, 1996 Shares Amount
Shares sold 45,074 $ 483,204
Shares issued to shareholders
in reinvestment of dividends 838 9,023
------------- ------------
Total issued 45,912 492,227
Shares redeemed (9,561) (103,525)
------------- ------------
Net increase 36,351 $ 388,702
============= ============
Class D Shares for the Period
October 21, 1994++ to Dollar
July 31, 1995 Shares Amount
Shares sold 64,086 $ 643,501
Shares issued to shareholders
in reinvestment of dividends
& distributions 561 5,822
------------- ------------
Total issued 64,647 649,323
Shares redeemed (5,602) (59,016)
------------- ------------
Net increase 59,045 $ 590,307
============= ============
[FN]
++Commencement of Operations.
<PAGE>
5. Capital Loss Carryforward:
At July 31, 1995, the Fund had a net capital loss carryforward of
approximately $1,170,000, all of which expires in 2003. This amount
will be available to offset like amounts of any future taxable
gains.
OFFICERS AND TRUSTEES
Arthur Zeikel, President and Trustee
James H. Bodurtha, 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
Hugh T. Hurley III, Portfolio Manager
Gerald M. Richard, Treasurer
Jerry Weiss, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, Massachusetts 02101
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
