MERRILL LYNCH
ARIZONA
MUNICIPAL
BOND FUND
FUND LOGO
Semi-Annual Report
January 31, 1997
<PAGE>
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
Vincent R. Giordano, Senior Vice President
Donald C. Burke, Vice President
Hugh T. Hurley III, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Jerry Weiss, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
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
The Municipal Market Environment
Long-term fixed-income bond yields generally declined over the six
months ended January 31, 1997. Initially, US Treasury bond yields
declined over 45 basis points (0.45%) to 6.45% by late November as
low employment growth and continued low inflation combined to
support lower bond yields. Concurrently, long-term municipal revenue
bond yields, as measured by the Bond Buyer Revenue Bond Index,
declined over 20 basis points to approximately 5.80%. However, signs
of increased economic activity and renewed inflation fears pushed
bond yields up for the remainder of the period. By the end of
January 1997, US Treasury bond yields rose 35 basis points to end
the period at approximately 6.80%. Similarly, long-term municipal
revenue bond yields rose approximately 20 basis points from their
lows in late November to approximately 6.00%. During the last six
months, US Treasury bond yields declined approximately 15 basis
points, while tax-exempt bond yields were essentially unchanged.
Recently, tax-exempt bond yields underperformed their taxable
counterparts despite a continued strong supply position. During the
six-month period ended January 31, 1997, over $88 billion in long-
term tax-exempt bonds were underwritten, essentially unchanged from
issuance a year ago. Approximately $50 billion in new municipal
bonds were issued during the three-month period ended January 31,
1997, representing a decline of over 5% compared to the same period
in 1996. This declining trend in bond issuance was even more
apparent recently. Slightly more than $10 billion in long-term bonds
was issued in January 1997, a decrease of over 15% compared to
January 1996 issuance.
The municipal bond market's recent underperformance relative to
Treasury issues was the result of a number of other factors. The
historic strength of the US equity market has attracted significant
investor interest. Additionally, as tax-exempt bond yields declined
again below 6%, some investors temporarily lost interest in the
municipal bond market. If interest rates continue to decline, as
they did at the end of 1994 and throughout 1995, investors, in
general, will quickly adjust to the new levels. The tax advantages
generated by municipal bonds quickly outweigh low nominal yields and
investor demand increases.
<PAGE>
The Presidential and Congressional elections this past November
resurrected some investor concerns regarding continued Federal
deficit reduction and potential legislative restrictions upon the
municipal bond market. This situation was similar to that at the
beginning of 1996 when tax-exempt bond yields were negatively
impacted by fears that legislation reducing the tax advantage of
municipal bonds would be introduced to aid further deficit
reductions.
However, the US Treasury bond market's recent relatively strong
performance resulted in municipal bonds becoming a particularly
attractive investment alternative. At current levels, long-term tax-
exempt revenue bonds yield over 88% of comparable US Treasury bond
yields. Current levels make tax-advantaged products more attractive
than they were at mid-year when yield ratios declined to
approximately 85%. For example, to an investor in the 36% Federal
income tax bracket, a current tax-exempt bond yield of 6% represents
a taxable equivalent yield of approximately 9.37%.
Looking forward, the supply of new bond issuance for 1997 is
expected to be very similar to that of 1996, with most annual
estimates falling in the $170 billion--$175 billion range. Investor
demand is also expected to regain its former strength, with 1997
total municipal redemptions (refundings, maturities and coupon
payments) in the $175 billion-$185 billion range. This overall
balance suggests that the positive technical backdrop the municipal
bond market enjoyed in 1996 could continue in 1997. However, it is
likely that seasonal factors may temporarily distort this overall
balanced technical scenario. During periods of reduced bond
issuance, the ease and ability to purchase tax-advantaged products
at their current attractive levels may be greatly restricted.
Portfolio Strategy
During the six-month period ended January 31, 1997, Merrill Lynch
Arizona Municipal Bond Fund primarily maintained a low cash reserve
to augment shareholder income as much as possible. This strategy put
the Fund in a good position to fully participate in the fall rally
of interest rates.
Strong demand for Arizona municipal bonds, from both retail and
institutional investors, and a lack of supply helped Arizona
municipal bonds outperform relative to the general municipal bond
marketplace. We continue to put a heavy emphasis on quality, with
85% of the portfolio being rated A or better by at least one of the
major rating agencies. As an actively managed mutual fund, we took
steps to reduce our near-term callable bond exposure in an effort to
ensure the potential for a generous tax-exempt income stream for
years to come.
Looking forward, we will continue to monitor signs of economic
growth or a possible slowdown in the economy. In addition, we are
interested to see if a balanced Federal budget can be achieved this
year. Should this occur, it would be a positive backdrop for long-
term interest rates, and we would adopt a more aggressive strategy
for the Fund to seek to enhance its total return potential.
<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 ahead.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Hugh T. Hurley III)
Hugh T. Hurley III
Vice President and Portfolio Manager
February 26, 1997
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* 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.
<PAGE>
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.25% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after approximately 10 years. (There is no initial
sales charge for automatic share conversions.)
* 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.
PERFORMANCE DATA (continued)
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month
1/31/97 10/31/96 1/31/96 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $10.60 $10.61 $10.96 -3.28% -0.09%
Class B Shares* 10.60 10.61 10.96 -3.28 -0.09
Class C Shares* 10.59 10.61 10.95 -3.29 -0.19
Class D Shares* 10.59 10.60 10.95 -3.29 -0.09
Class A Shares--Total Return* +1.86(1) +1.24(2)
Class B Shares--Total Return* +1.34(3) +1.11(4)
Class C Shares--Total Return* +1.23(5) +0.99(6)
Class D Shares--Total Return* +1.75(7) +1.22(8)
Class A Shares--Standardized 30-day Yield 4.44%
Class B Shares--Standardized 30-day Yield 4.11%
Class C Shares--Standardized 30-day Yield 4.02%
Class D Shares--Standardized 30-day Yield 4.34%
<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 $0.553 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.147 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.499 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.133 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.488 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.130 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.542 per share ordinary
income dividends.
(8)Percent change includes reinvestment of $0.144 per share ordinary
income dividends.
</TABLE>
<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
1996 10.98 10.65 -- 0.545 + 2.09
1/1/97--1/31/97 10.65 10.60 -- 0.040 - 0.01
------ ------
Total $0.119 Total $3.230
Cumulative total return as of 1/31/97: +45.58%**
<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>
PERFORMANCE DATA (continued)
<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
1996 10.98 10.65 -- 0.491 + 1.58
1/1/97--1/31/97 10.65 10.60 -- 0.036 - 0.05
------ ------
Total $0.119 Total $2.954
Cumulative total return as of 1/31/97: +41.82%**
<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
1996 10.98 10.65 -- 0.480 + 1.48
1/1/97--1/31/97 10.65 10.59 -- 0.035 - 0.15
------ ------
Total $0.054 Total $1.086
Cumulative total return as of 1/31/97: +17.60%**
<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>
<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
1996 10.97 10.64 -- 0.534 + 1.99
1/1/97--1/31/97 10.64 10.59 -- 0.039 - 0.02
------ ------
Total $0.054 Total $1.214
Cumulative total return as of 1/31/97: +19.05%**
<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>
PERFORMANCE DATA (concluded)
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/96 +2.09% -1.99%
Five Years Ended 12/31/96 +7.18 +6.31
Inception (11/29/91)
through 12/31/96 +7.66 +6.80
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
<PAGE>
Class B Shares*
Year Ended 12/31/96 +1.58% -2.30%
Five Years Ended 12/31/96 +6.64 +6.64
Inception (11/29/91)
through 12/31/96 +7.12 +7.12
[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 12/31/96 +1.48% +0.51%
Inception (10/21/94)
through 12/31/96 +7.74 +7.74
[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 12/31/96 +1.99% -2.09%
Inception (10/21/94)
through 12/31/96 +8.28 +6.28
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
PORTFOLIO ABBREVIATIONS
<PAGE>
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)
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
VRDN Variable Rate Demand Notes
YCN Yield Curve Notes
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Arizona--89.7%
<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 $ 1,730
NR* A 1,100 7% due 3/01/2005 1,166
NR* A 750 Arizona Educational Loan Marketing Corporation, Educational Loan Revenue
Bonds, AMT, Sub-Series, 6.625% due 9/01/2005 791
Arizona Health Facilities Authority, Hospital Systems Revenue Bonds:
AAA Aaa 1,000 (Northern Arizona Healthcare), Series A, 5.25% due 10/01/2026 (d) 940
NR* Aaa 2,245 Refunding (Saint Luke's Health Systems), 7.25% due 11/01/2003 (h) 2,524
AA Aa 1,660 Arizona State Transportation Board, Highway Revenue Refunding Bonds,
Sub-Series A, 5% due 7/01/2010 1,623
AA+ Aa1 2,000 Arizona State Wastewater Management Authority, Wastewater Treatment Financial
Assistance Revenue Bonds (City of Phoenix), 6.80% due 7/01/2011 2,208
NR* Aa 2,000 Arizona Student Loan Acquisition Authority, Student Loan Revenue Bonds, AMT,
Senior Series B, 6.60% due 5/01/2010 2,122
AAA Aaa 700 Avondale, Arizona, Municipal Development Corporation, Municipal Facilities
Revenue Bonds, 6.625% due 7/01/2001 (d)(h) 767
<PAGE>
Chandler, Arizona, Water and Sewer Revenue Bonds (d):
AAA Aaa 1,000 6.50% due 7/01/2014 1,088
AAA Aaa 1,000 5.25% due 7/01/2016 969
Coconino and Yavapai Counties, Arizona, Joint Unified School District No. 9,
GO (Sedona Oak Creek), UT, Series A (i):
A- Baa1 200 6.70% due 7/01/2006 214
A- Baa1 250 6.75% due 7/01/2007 268
BBB- NR* 1,750 Coconino County, Arizona, Pollution Control Corporation, PCR (Nevada Power Co.
Project), AMT, 6.375% due 10/01/2036 1,762
AAA Aaa 3,620 Gilbert, Arizona, Water and Sewer Revenue Refunding Bonds, 6.50% due 7/01/2022 (b) 3,936
Glendale, Arizona, IDA, Educational Facilities Revenue Refunding Bonds
(American Graduate School International) (g):
AAA NR* 1,000 7.125% due 7/01/2005 (h) 1,165
AAA NR* 500 5.875% due 7/01/2015 508
AAA Aaa 2,250 Maricopa County, Arizona, Elementary School District No. 38 (Madison), UT,
Series A, 5% due 7/01/2014 (b) 2,130
AAA Aaa 4,500 Maricopa County, Arizona, Elementary School District No. 68, Revenue Refunding
Bonds (Alhambra), UT, Series A, 6.75% due 7/01/2014 (f) 4,992
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) 2,220
Maricopa County, Arizona, IDA, Hospital Facilities Revenue Refunding Bonds:
AAA Aaa 2,800 (John C. Lincoln Hospital), 7.50% due 12/01/2013 (c) 3,111
AAA Aaa 750 (Samaritan Health Services), Series A, 7% due 12/01/2013 (d) 820
Maricopa County, Arizona, Pollution Control Corporation, PCR, Refunding:
A1+ P1 700 (Arizona Public Service Co.), VRDN, Series C, 3.65% due 5/01/2029 (e) 700
BB+ Ba1 1,500 (Public Service Company of New Mexico Project), Series A, 6.30% due 12/01/2026 1,510
AAA Aaa 3,100 Maricopa County, Arizona, Unified School District No. 69, Paradise Valley,
Project of 1994, UT, Series B, 5.25% due 7/01/2015 (d) 2,993
AAA Aaa 1,000 Mohave County, Arizona, IDA, Hospital System Revenue Bonds (Baptist Hospital),
5.75% due 9/01/2026 (d) 1,004
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<PAGE>
Arizona (concluded)
<S> <S> <C> <S> <C>
NR* NR* $ 2,000 Mohave County, Arizona, IDA, IDR (North Star Steel Co. Project), AMT, 6.70%
due 3/01/2020 $ 2,138
AAA Aaa 1,325 Mohave County, Arizona, Unified High School District No. 30 (Mohave), GO,
UT, Series B, 6.70% due 7/01/2001 (b)(h) 1,456
Peoria, Arizona, Improvement District No. 8801, Special Assessment Bonds
(North Valley Power Center):
BBB NR* 200 7.30% due 1/01/2009 218
BBB NR* 395 7.30% due 1/01/2011 428
Peoria, Arizona, Improvement District No. 8802, Special Assessment Bonds:
BBB NR* 430 7.20% due 1/01/2010 466
BBB NR* 510 7.20% due 1/01/2013 554
AAA Aaa 1,000 Peoria, Arizona, Water and Sewer Revenue Refunding Bonds, 6.625% due 7/01/2006 (b) 1,068
AAA Aaa 2,000 Phoenix, Arizona, Civic Improvement Corporation, Municipal Facilities Excise
Tax Revenue Bonds, 6.90% due 7/01/2021 (d) 2,237
Phoenix, Arizona, Civic Improvement Corporation, Water System Revenue Bonds,
Junior Lien:
AA- Aa 1,000 5.60% due 7/01/2017 998
AA- Aa 1,600 5.60% due 7/01/2018 1,594
AA- Aa 1,250 6% due 7/01/2019 1,277
AA+ Aa1 1,400 Phoenix, Arizona, GO, Refunding, UT, Series A, 6.25% due 7/01/2017 1,531
AAA Aaa 950 Pima County, Arizona, Sewer Revenue Refunding Bonds, 6.75% due 7/01/2015 (b) 1,030
BBB NR* 750 Prescott Valley, Arizona, Improvement District, Special Assessment Sewer
Collection System, Roadway Repair Revenue Bonds, 7.90% due 1/01/2012 837
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 4,256
BBB NR* 1,600 Sedona, Arizona, Sewer Revenue Refunding Bonds, 7% due 7/01/2012 1,714
AAA Aaa 500 Tucson, Arizona, Airport Authority Revenue Bonds, AMT, Series B, 7.25% due
6/01/2020 (d) 546
Tucson, Arizona, Water Revenue Bonds:
A+ A1 1,250 Refunding, 6.50% due 7/01/2016 1,334
A+ NR* 1,650 Series D, 6.75% due 7/01/2001 (h) 1,827
University of Arizona Revenue Bonds:
AA A1 2,000 Refunding, Series A, 6.20% due 6/01/2016 2,175
AA NR* 1,570 Series B, 6.90% due 6/01/2000 (h) 1,719
<PAGE>
Puerto Rico--9.6%
A Baa1 4,000 Puerto Rico Commonwealth, GO, 5.40% due 7/01/2025 3,773
AAA Aaa 2,000 Puerto Rico Commonwealth, YCN, 7.71% due 7/01/2020 (a)(c) 2,050
AAA Aaa 1,900 Puerto Rico Electric Power Authority, Power Revenue Bonds, LEVRRS,
7.906% due 7/01/2023 (a)(c) 1,981
Total Investments (Cost--$75,852)--99.3% 80,468
Other Assets Less Liabilities--0.7% 533
-------
Net Assets--100.0% $81,001
=======
<FN>
*Not Rated.
(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, 1997.
(b)FGIC Insured.
(c)FSA Insured.
(d)MBIA Insured.
(e)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at January 31, 1997.
(f)AMBAC Insured.
(g)Insured by Connie Lee.
(h)Prerefunded.
(i)Bank Qualified.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of January 31, 1997
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$75,852,275) (Note 1a) $ 80,467,980
Cash 57,019
Receivables:
Interest $ 752,968
Beneficial interest sold 62,440 815,408
------------
Deferred organization expenses (Note 1e) 4,868
Prepaid expenses and other assets (Note 1e) 2,150
------------
Total assets 81,347,425
------------
<PAGE>
Liabilities: Payables:
Beneficial interest redeemed 154,510
Dividends to shareholders (Note 1f) 65,190
Investment adviser (Note 2) 39,287
Distributor (Note 2) 28,896 287,883
------------
Accrued expenses and other liabilities 58,051
------------
Total liabilities 345,934
------------
Net Assets: Net assets $ 81,001,491
============
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited
Consist of: number of shares authorized $ 134,660
Class B Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized 599,659
Class C Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized 11,699
Class D Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized 18,414
Paid-in capital in excess of par 77,752,431
Accumulated realized capital losses on investments--net (Note 5) (2,131,077)
Unrealized appreciation on investments--net 4,615,705
------------
Net assets $ 81,001,491
============
Net Asset Value: Class A--Based on net assets of $14,268,897 and 1,346,595 shares
of beneficial interest outstanding $ 10.60
============
Class B--Based on net assets of $63,543,962 and 5,996,587 shares
of beneficial interest outstanding $ 10.60
============
Class C--Based on net assets of $1,239,210 and 116,989 shares
of beneficial interest outstanding $ 10.59
============
Class D--Based on net assets of $1,949,422 and 184,144 shares
of beneficial interest outstanding $ 10.59
============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<PAGE>
For the Six Months Ended January 31, 1997
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 2,529,890
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 234,015
Account maintenance and distribution fees--Class B (Note 2) 167,530
Professional fees 27,421
Accounting services (Note 2) 26,135
Printing and shareholder reports 14,717
Transfer agent fees--Class B (Note 2) 14,404
Registration fees (Note 1e) 7,557
Account maintenance and distribution fees--Class C (Note 2) 4,257
Pricing fees 3,235
Custodian fees 2,970
Transfer agent fees--Class A (Note 2) 2,552
Amortization of organization expenses (Note 1e) 2,438
Trustees' fees and expenses 2,230
Account maintenance fees--Class D (Note 2) 1,022
Transfer agent fees--Class D (Note 2) 357
Transfer agent fees--Class C (Note 2) 306
Other 1,763
------------
Total expenses 512,909
------------
Investment income--net 2,016,981
------------
Realized & Realized gain on investments--net 16,191
Unrealized Gain on Change in unrealized appreciation on investments--net 452,077
Investments--Net ------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $ 2,485,249
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Six For the
Months Ended Year Ended
January 31, July 31,
Increase (Decrease) in Net Assets: 1997 1996
<S> <S> <C> <C>
Operations: Investment income--net $ 2,016,981 $ 4,136,261
Realized gain on investments--net 16,191 375,382
Change in unrealized appreciation on investments--net 452,077 351,174
------------ ------------
Net increase in net assets resulting from operations 2,485,249 4,862,817
------------ ------------
<PAGE>
Dividends to Investment income--net:
Shareholders Class A (376,780) (769,592)
(Note 1f): Class B (1,556,338) (3,253,699)
Class C (32,231) (57,446)
Class D (51,632) (55,524)
------------ ------------
Net decrease in net assets resulting from dividends to
shareholders (2,016,981) (4,136,261)
------------ ------------
Beneficial Net decrease in net assets derived from beneficial interest
Interest transactions (4,322,128) (4,200,184)
Transactions ------------ ------------
(Note 4):
Net Assets: Total decrease in net assets (3,853,860) (3,473,628)
Beginning of period 84,855,351 88,328,979
============ ============
End of period $ 81,001,491 $ 84,855,351
============ ============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
Class A
For the
Six
The following per share data and ratios have been derived Months
from information provided in the financial statements. Ended
Jan. 31, For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1994 1993
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.54 $ 10.46 $ 10.40 $ 11.01 $ 10.74
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .28 .54 .55 .57 .60
Realized and unrealized gain (loss) on
investments--net .06 .08 .11 (.39) .39
-------- -------- -------- -------- --------
Total from investment operations .34 .62 .66 .18 .99
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.28) (.54) (.55) (.57) (.60)
Realized gain on investments--net -- -- (.01) (.22) (.12)
In excess of realized gain on
investments--net -- -- (.04) -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.28) (.54) (.60) (.79) (.72)
-------- -------- -------- -------- --------
Net asset value, end of period $ 10.60 $ 10.54 $ 10.46 $ 10.40 $ 11.01
======== ======== ======== ======== ========
<PAGE>
Total Investment Based on net asset value per share 3.24%+++ 6.04% 6.76% 1.62% 9.62%
Return:** ======== ======== ======== ======== ========
Ratios to Expenses, net of reimbursement .79%* .79% .80% .56% .41%
Average ======== ======== ======== ======== ========
Net Assets: Expenses .79%* .79% .83% .80% .81%
======== ======== ======== ======== ========
Investment income--net 5.15%* 5.09% 5.44% 5.32% 5.57%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 14,269 $ 14,988 $ 14,893 $ 18,363 $ 17,988
Data: ======== ======== ======== ======== ========
Portfolio turnover 19.69% 36.39% 62.65% 53.35% 73.48%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
Class B
For the
Six
The following per share data and ratios have been derived Months
from information provided in the financial statements. Ended
Jan. 31, For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1994 1993
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.54 $ 10.46 $ 10.40 $ 11.01 $ 10.74
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .25 .49 .50 .52 .54
Realized and unrealized gain (loss) on
investments--net .06 .08 .11 (.39) .39
-------- -------- -------- -------- --------
Total from investment operations .31 .57 .61 .13 .93
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.25) (.49) (.50) (.52) (.54)
Realized gain on investments--net -- -- (.01) (.22) (.12)
In excess of realized gain on
investments--net -- -- (.04) --
-------- -------- -------- -------- --------
Total dividends and distributions (.25) (.49) (.55) (.74) (.66)
-------- -------- -------- -------- --------
Net asset value, end of period $ 10.60 $ 10.54 $ 10.46 $ 10.40 $ 11.01
======== ======== ======== ======== ========
<PAGE>
Total Investment Based on net asset value per share 2.97%+++ 5.49% 6.22% 1.11% 9.07%
Return:** ======== ======== ======== ======== ========
Ratios to Expenses, net of reimbursement 1.30%* 1.30% 1.31% 1.07% .92%
Average ======== ======== ======== ======== ========
Net Assets: Expenses 1.30%* 1.30% 1.33% 1.30% 1.32%
======== ======== ======== ======== ========
Investment income--net 4.64%* 4.59% 4.92% 4.82% 5.06%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands). $ 63,544 $ 66,497 $ 72,090 $ 80,616 $ 81,078
Data: ======== ======== ======== ======== ========
Portfolio turnover 19.69% 36.39% 62.65% 53.35% 73.48%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class C Class D
For the For the For the For the
Six For the Period Six For the Period
The following per share data and ratios have been derived Months Year Oct. 21, Months Year Oct. 21,
from information provided in the financial statements. Ended Ended 1994++ to Ended Ended 1994++ to
Jan. 31, July 31, July 31, Jan. 31, July 31, July 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1997 1996 1995
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of
Operating period $ 10.54 $ 10.46 $ 10.05 $ 10.53 $ 10.45 $ 10.05
Performance: -------- -------- -------- -------- -------- --------
Investment income--net .25 .48 .37 .27 .53 .42
Realized and unrealized gain on
investments--net .05 .08 .46 .06 .08 .45
-------- -------- -------- -------- -------- --------
Total from investment operations .30 .56 .83 .33 .61 .87
-------- -------- -------- -------- -------- --------
Less dividends and distributions
Investment income--net (.25) (.48) (.37) (.27) (.53) (.42)
Realized gain on investments--net -- -- (.01) -- -- (.01)
In excess of realized gain on
investments--net -- -- (.04) -- -- (.04)
-------- -------- -------- -------- -------- --------
Total dividends and distributions (.25) (.48) (.42) (.27) (.53) (.47)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 10.59 $ 10.54 $ 10.46 $ 10.59 $ 10.53 $ 10.45
======== ======== ======== ======== ======== ========
<PAGE>
Total Investment Based on net asset value per share 2.83%+++ 5.38% 8.53%+++ 3.19%+++ 5.93% 8.92%+++
Return:** ======== ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 1.40%* 1.40% 1.43%* .89%* .89% .93%*
Net Assets: ======== ======== ======== ======== ======== ========
Expenses 1.40%* 1.40% 1.43%* .89%* .89% .93%*
======== ======== ======== ======== ======== ========
Investment income--net 4.54%* 4.49% 4.58%* 5.05%* 5.01% 5.23%*
======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period
Data: (in thousands) $ 1,239 $ 1,499 $ 729 $ 1,949 $ 1,871 $ 617
======== ======== ======== ======== ======== ========
Portfolio turnover 19.69% 36.39% 62.65% 19.69% 36.39% 62.65%
======== ======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
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.
<PAGE>
(a) Valuation of investments--Municipal bonds and other portfolio
securities in which the Fund invests are traded primarily in the
over-the-counter municipal bond and money markets and are valued at
the last available bid price in the over-the-counter market or on
the basis of yield equivalents as obtained from one or more dealers
that make markets in the securities. Financial futures contracts and
options thereon, which are traded on exchanges, are valued at their
settlement prices as of the close of such exchanges. Short-term
investments with remaining maturities of sixty days or less are
valued at amortized cost, which approximates market value.
Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or
under the direction of the Board of Trustees of the Trust, including
valuations furnished by a pricing service retained by the Trust,
which may utilize a matrix system for valuations. The procedures of
the pricing service and its valuations are reviewed by the officers
of the Trust under the general supervision of the Trustees.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to 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.
<PAGE>
(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.
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.
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 Distribution
Maintenance 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, 1997, 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 $1,748 $1,543
Class D $ 338 $3,531
For the six months ended January 31, 1997, MLPF&S received
contingent deferred sales charges of $68,649 and $10 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, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended January 31, 1997 were $15,957,931 and
$18,408,080, respectively.
Net realized and unrealized gains (losses) as of January 31, 1997
were as follows:
Realized
Gains Unrealized
(Losses) Gains
Long-term investments $ 429,654 $ 4,615,705
Financial futures contracts (413,463) --
------------ ------------
Total $ 16,191 $ 4,615,705
============ ============
<PAGE>
As of January 31, 1997, net unrealized appreciation for Federal
income tax purposes aggregated $4,615,705, of which $4,658,421
related to appreciated securities and $42,716 related to depreciated
securities. The aggregate cost of investments at January 31, 1997
for Federal income tax purposes was $75,852,275.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest
transactions was $4,322,128 and $4,200,184 for the six months ended
January 31, 1997 and for the year ended July 31, 1996, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Six Months Dollar
Ended January 31, 1997 Shares Amount
Shares sold 61,328 $ 650,073
Shares issued to shareholders
in reinvestment of dividends 19,127 202,463
------------ ------------
Total issued 80,455 852,536
Shares redeemed (156,046) (1,648,441)
------------ ------------
Net decrease (75,591) $ (795,905)
============ ============
Class A Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 158,471 $ 1,664,285
Shares issued to shareholders
in reinvestment of dividends 37,815 403,055
------------ ------------
Total issued 196,286 2,067,340
Shares redeemed (197,525) (2,098,198)
------------ ------------
Net decrease (1,239) $ (30,858)
============ ============
Class B Shares for the Six Months Dollar
Ended January 31, 1997 Shares Amount
<PAGE>
Shares sold 396,961 $ 4,197,428
Shares issued to shareholders
in reinvestment of dividends 60,369 639,091
------------ ------------
Total issued 457,330 4,836,519
Automatic conversion
of shares (21,596) (228,495)
Shares redeemed (748,830) (7,934,907)
------------ ------------
Net decrease (313,096) $ (3,326,883)
============ ============
Class B Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 1,176,459 $ 12,522,295
Shares issued to shareholders
in reinvestment of dividends 121,346 1,293,460
------------ ------------
Total issued 1,297,805 13,815,755
Automatic conversion of
shares (32,533) (348,316)
Shares redeemed (1,845,769) (19,662,985)
------------ ------------
Net decrease (580,497) $ (6,195,546)
============ ============
Class C Shares for the Six Months Dollar
Ended January 31, 1997 Shares Amount
Shares sold 25,634 $ 270,154
Shares issued to shareholders
in reinvestment of dividends 2,059 21,774
------------ ------------
Total issued 27,693 291,928
Shares redeemed (53,028) (559,773)
------------ ------------
Net decrease (25,335) $ (267,845)
============ ============
Class C Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 89,888 $ 953,026
Shares issued to shareholders
in reinvestment of dividends 3,816 40,631
------------ ------------
Total issued 93,704 993,657
Shares redeemed (21,076) (224,505)
------------ ------------
Net increase 72,628 $ 769,152
============ ============
<PAGE>
Class D Shares for the Six Months Dollar
Ended January 31, 1997 Shares Amount
Shares sold 23,618 $ 250,248
Automatic conversion
of shares 21,615 228,495
Shares issued to shareholders
in reinvestment of dividends 2,421 25,603
------------ ------------
Total issued 47,654 504,346
Shares redeemed (41,187) (435,841)
------------ ------------
Net increase 6,467 $ 68,505
============ ============
Class D Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 101,332 $ 1,072,810
Automatic conversion
of shares 32,564 348,316
Shares issued to shareholders
in reinvestment of dividends 2,352 25,016
------------ ------------
Total issued 136,248 1,446,142
Shares redeemed (17,616) (189,074)
------------ ------------
Net increase 118,632 $ 1,257,068
============ ============
5. Capital Loss Carryforward:
At July 31, 1996, the Fund had a net capital loss carryforward of
approximately $1,068,000, all of which expires in 2003. This amount
will be available to offset like amounts of any future taxable
gains.
