MERRILL LYNCH
ARIZONA
MUNICIPAL
BOND FUND
[FUND LOGO]
STRATEGIC
Performance
Semi-Annual Report
January 31, 1998
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless accompanied or
preceded by the Fund's current prospectus. Past performance results
shown in this report should not be considered a representation of future
performance. Investment return and principal value of shares will
fluctuate so that shares, when redeemed, may be worth more or less than
their original cost. Statements and other information
herein are as dated and are subject to change.
Merrill Lynch Arizona
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, NJ
08543-9011 #16238 -- 1/98
[RECYCLE LOGO]
Printed on post-consumer recycled paper
Merrill Lynch Arizona Municipal Bond Fund January 31, 1998
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the six months ended January 31, 1998, long-term bond yields
declined to recent historic lows. Prior to late October, the ongoing
positive combination of moderate economic growth and low inflation had
allowed interest rates to gradually move lower. During the last three
months, however, the decline in interest rates was driven more by the
continued turmoil in Asian equity markets than by fundamental concerns.
A significant "flight to quality" has benefited the US Treasury bond
market, particularly longer-maturity US Treasury bonds, as foreign
investors have sought safe haven in the relative stability of US
financial markets. Over the six months ended January 31, 1998, US
Treasury bond yields declined approximately 50 basis points (0.50%)
to 5.81%.
Without the ability to benefit from the tax advantage inherent in
municipal bonds, foreign investors have not participated in the
tax-exempt market. Consequently, municipal bond yields have not
declined dramatically as have taxable US Treasury securities.
Long-term municipal revenue bond yields, as measured by the
Bond Buyer Revenue Index, declined only 15 basis points to end the
six-month period ended January 31, 1998 at 5.33%. Nevertheless,
tax-exempt bond yields have not reached these levels since the
mid-1970s.
The increase in new municipal bond issuance over the past six months has
also prevented the tax-exempt bond market from more closely mirroring
the yield declines exhibited by its taxable counterpart. During the last
six months, over $120 billion in new long-term municipal bonds were
underwritten, an increase of over 30% compared to the same six-month
period one year ago. As interest rates have continued to decline in
recent months, new tax-exempt bond issuance has remained strong. Over
$60 million in new long-term municipal securities were issued during the
last three months, an increase of over 20% compared to the same three-
month period ended January 31, 1997. During the past month, over $16
billion in new long-term municipal securities were underwritten,
representing an increase of over 40% compared to the January 1997 level.
In our opinion, the recent correction in world equity markets has
enhanced the near-term prospects for continued low, if not declining,
interest rates in the United States. It is likely that the recent
correction will result in slower US domestic growth in the coming
months. This decline should be generated in part by reduced US export
growth. Additionally, some decline in consumer spending can also be
expected because of reduced consumer confidence. Perhaps more
importantly, it is likely that, barring a dramatic and unexpected
resurgence in domestic growth, the Federal Reserve Board will be
unwilling to raise interest rates until the full impact of the equity
market's corrections can be established.
All of these factors suggest that over the near term, interest rates,
including tax-exempt bond yields, are unlikely to rise by any
appreciable amount. It is probable that municipal bond yields will
remain under some relative pressure because of continued strong new-
issue supply. However, the recent pace of municipal bond issuance is
likely to be unsustainable. Continued increases in bond issuance will
require lower and lower tax-exempt bond yields to generate the economic
savings necessary for additional municipal bond refinancings.
Preliminary estimates of 1998 total municipal bond issuance are
presently in the $195 billion -- $220 billion range. These estimates
suggest that recent supply pressures are likely to abate somewhat next
year, or at least exert only minimal technical pressure during 1998.
Additionally, municipal bond investors received approximately
$23 billion in January coupon payments, bond maturities and proceeds
from early redemptions, which should serve to intensify investor demand
in the near future. With tax-exempt bond yields at already attractive
yield ratios relative to US Treasury bonds (approximately 90% at the end
of December 1997), any further pressure on the municipal market may well
represent an attractive investment opportunity.
Portfolio Strategy
During the six months ended January 31, 1998, our portfolio strategy was
a continuation of our positive outlook on the market. Since the spring
of 1997, the Fund has been fully invested in quality long-duration
municipal bonds, allowing it to participate in the powerful bond market
appreciation. As mentioned in our last report to shareholders, we stated
that at that time we expected to restructure the Fund to become slightly
more defensive as interest rates continued to decline. However, we chose
not to do this because of the significant turmoil caused by the Asian
financial crisis. As world markets experienced periods of volatility,
investors sought the safe haven of US Treasury bonds which, in turn,
benefited fixed-income securities.
The structure of the Fund remained focused on quality municipal bonds.
As of January 31, 1998, 73% of the Fund's portfolio was rated A or
better by at least one of the major ratings agencies. Looking ahead, we
anticipate keeping our present portfolio structure in place until Asia
stabilizes or the US economy shows signs of pushing inflation higher.
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,
/S/ARTHUR ZEIKEL
Arthur Zeikel
President
/S/VINCENT R. GIORDANO
Vincent R. Giordano
Senior Vice President
/S/HUGH T. HURLEY III
Hugh T. Hurley III
Vice President and Portfolio Manager
March 4, 1998
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill
Lynch Select PricingSM System, which offers four pricing alternatives:
[bullet] 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.
[bullet] 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.)
[bullet] 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.
[bullet] Class D Shares incur a maximum initial sales charge of
4% and an account maintenance fee of 0.10% (but no
distribution fee).
None of the past results shown should be considered a representation of
future performance. Figures shown in the "Average Annual Total Return"
tables as well as the total returns and cumulative total returns in the
"Performance Summary" tables assume reinvestment of all dividends and
capital gains distributions at net asset value on the payable date.
Investment return and principal value of shares will fluctuate so that
shares, when redeemed, may be worth more or less than their original
cost. Dividends paid to each class of shares will vary because of the
different levels of account maintenance, distribution and transfer
agency fees applicable to each class, which are deducted from the income
available to be paid to shareholders.
<TABLE>
<CAPTION>
Recent Performance Results
12 Month 3 Month
1/31/98 10/31/97 1/31/97 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $10.99 $10.82 $10.60 +3.68% +1.57%
Class B Shares* 10.99 10.82 10.60 +3.68 +1.57
Class C Shares* 10.98 10.82 10.59 +3.68 +1.48
Class D Shares* 10.98 10.81 10.59 +3.68 +1.57
Class A Shares -- Total Return* +9.13(1) +2.84(2)
Class B Shares -- Total Return* +8.58(3) +2.71(4)
Class C Shares -- Total Return* +8.47(5) +2.59(6)
Class D Shares -- Total Return* +9.02(7) +2.82(8)
Class A Shares -- Standardized 30-day Yield 4.02%
Class B Shares -- Standardized 30-day Yield 3.68%
Class C Shares -- Standardized 30-day Yield 3.58%
Class D Shares -- Standardized 30-day Yield 3.92%
* 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 $0.551 per share ordinary
income dividends.
(2) Percent change includes reinvestment of $0.136 per share ordinary
income dividends.
(3) Percent change includes reinvestment of $0.497 per share ordinary
income dividends.
(4) Percent change includes reinvestment of $0.122 per share ordinary
income dividends.
(5) Percent change includes reinvestment of $0.486 per share ordinary
income dividends.
(6) Percent change includes reinvestment of $0.120 per share ordinary
income dividends.
(7) Percent change includes reinvestment of $0.540 per share ordinary
income dividends.
(8) Percent change includes reinvestment of $0.133 per share ordinary
income dividends.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class A Shares
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
1997 10.65 10.94 -- 0.554 + 8.17
1/1/98 -- 1/31/98 10.94 10.99 -- 0.038 + 0.88
Total $0.119 Total $3.782
Cumulative total return as of 1/31/98: +58.87%**
* Figures may include short-term capital gains distributions.
** Figures do not include sales charge; results would be lower if sales charge was included.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class B Shares
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
1997 10.65 10.94 -- 0.499 + 7.62
1/1/98 -- 1/31/98 10.94 10.99 -- 0.034 + 0.84
Total $0.119 Total $3.451
Cumulative total return as of 1/31/98: +53.98%**
* Figures may include short-term capital gains distributions.
** Figures do not reflect deduction of any sales charge; results would be lower if sales
charge was deducted.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class C Shares
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
1997 10.65 10.94 -- 0.488 + 7.51
1/1/98 -- 1/31/98 10.94 10.98 -- 0.033 + 0.74
Total $0.054 Total $1.572
Cumulative total return as of 1/31/98: +27.57%**
* Figures may include short-term capital gains distributions.
** Figures do not reflect deduction of any sales charge; results would be lower if sales
charge was deducted.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class D Shares
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
1997 10.64 10.93 -- 0.542 + 8.06
1/1/98 -- 1/31/98 10.93 10.98 -- 0.037 + 0.87
Total $0.054 Total $1.754
Cumulative total return as of 1/31/98: +29.80%**
* Figures may include short-term capital gains distributions.
** Figures 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 12/31/97 +8.17% +3.84%
Five Years Ended 12/31/97 +6.82 +5.95
Inception (11/29/91)
through 12/31/97 +7.74 +7.02
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/97 +7.62% +3.62%
Five Years Ended 12/31/97 +6.28 +6.28
Inception (11/29/91)
through 12/31/97 +7.20 +7.20
* 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 12/31/97 +7.51% +6.51%
Inception (10/21/94)
through 12/31/97 +7.67 +7.67
* 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 12/31/97 +8.06% +3.74%
Inception (10/21/94)
through 12/31/97 +8.21 +6.84
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
<TABLE>
<CAPTION>
Merrill Lynch Arizona Municipal Bond Fund January 31, 1998
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <C> <C> <C> <C>
Arizona -- 91.2%
Arizona Educational Loan Marketing Corporation, Educational Loan Revenue Bonds,
AMT, Series B:
NR* Aa2 $1,600 7% due 3/01/2003 $1,754
NR* Aa2 1,100 7% due 3/01/2005 1,203
NR* A 750 Arizona Educational Loan Marketing Corporation, Educational Loan Revenue Bonds,
AMT, Sub-Series, 6.625% due 9/01/2005 809
NR* Aaa 2,180 Arizona Health Facilities Authority, Hospital System Revenue Refunding Bonds
(Saint Luke's Health Systems), 7.25% due 11/01/2003 (h) 2,502
AA+ Aa1 2,000 Arizona State Wastewater Management Authority, Wastewater Treatment Financial
Assistance Revenue Bonds (City of Phoenix), 6.80% due 7/01/2011 2,239
NR* Aa 2,000 Arizona Student Loan Acquisition Authority, Student Loan Revenue Bonds, AMT,
Senior Series B, 6.60% due 5/01/2010 2,190
Coconino County, Arizona, Pollution Control Corporation, PCR (Nevada Power Co.
Project), AMT:
BBB- NR* 1,750 6.375% due 10/01/2036 1,895
BBB- NR* 2,500 Series B, 5.80% due 11/01/2032 2,581
BBB Baa2 2,500 Gila County, Arizona, IDA, Revenue Refunding and Environmental Bonds (Asarco Inc.),
5.55% due 1/01/2027 2,551
AAA Aaa 3,620 Gilbert, Arizona, Water and Sewer Revenue Refunding Bonds, 6.50% due 7/01/2022 (b) 4,060
Glendale, Arizona, IDA, Educational Facilities Revenue Refunding Bonds (American
Graduate School International) (g):
AAA NR* 1,000 7.125% due 7/01/2005 (h) 1,188
AAA NR* 500 5.875% due 7/01/2015 539
AAA Aaa 1,700 Glendale, Arizona, Unified High School District No. 205 (Projects of 1993), UT, Series B,
5.70% due 7/01/2014 (b) 1,821
AAA Aaa 4,500 Maricopa County, Arizona, Elementary School District No. 68, Refunding (Alhambra), UT,
Series A, 6.75% due 7/01/2014 (f) 5,143
BBB- Baa1 1,000 Maricopa County, Arizona, Hospital Revenue Refunding Bonds (Sun Health Corporation),
6.125% due 4/01/2018 1,064
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) 2,198
Maricopa County, Arizona, Pollution Control Corporation, PCR, Refunding (Arizona Public
Service Co.), VRDN (a):
A1+ P1 800 Series B, 3.65% due 5/01/2029 800
A1+ P1 1,200 Series E, 3.65% due 5/01/2029 1,200
Maricopa County, Arizona, Pollution Control Corporation, PCR, Refunding (Public Service
Company of New Mexico Project), Series A:
BB+ Ba1 1,800 5.75% due 11/01/2022 1,863
BB+ Ba1 1,500 6.30% due 12/01/2026 1,624
AAA Aaa 2,125 Mesa, Arizona, Utilities System Revenue Bonds, 6.125% due 7/01/2013 (b) 2,365
NR* NR* 2,000 Mohave County, Arizona, IDA, IDR (North Star Steel Co. Project), AMT, 6.70% due 3/01/2020 2,193
Peoria, Arizona, Improvement District No. 8801, Special Assessment Bonds (North Valley
Power Center):
BBB NR* 200 7.30% due 1/01/2009 223
BBB NR* 395 7.30% due 1/01/2011 438
Peoria, Arizona, Improvement District No. 8802, Special Assessment Bonds:
BBB NR* 430 7.20% due 1/01/2010 476
BBB NR* 510 7.20% due 1/01/2013 564
AAA Aaa 2,000 Phoenix, Arizona, Civic Improvement Corporation, Municipal Facilities Excise Tax
Revenue Bonds, 6.90% due 7/01/2004 (d) (h) 2,336
AA- Aa 1,250 Phoenix, Arizona, Civic Improvement Corporation, Water System Revenue Bonds,
Junior Lien, 6% due 7/01/2019 1,341
AA+ Aa1 1,400 Phoenix, Arizona, GO, Refunding, UT, Series A, 6.25% due 7/01/2017 1,639
Phoenix, Arizona, Various Purpose Bonds, GO, UT:
AA+ Aa1 2,500 4.50% due 7/01/2019 2,343
AA+ Aa1 3,450 4.50% due 7/01/2022 3,176
AAA Aaa 750 Pima County, Arizona, IDA, Revenue Refunding Bonds (Healthpartners), Series A, 5.625%
due 4/01/2014 (d) 804
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 Bonds, 7.90% due 1/01/2012 854
BBB NR* 1,600 Sedona, Arizona, Sewer Revenue Refunding Bonds, 7% due 7/01/2012 1,772
AAA Aaa 500 Tucson, Arizona, Airport Authority Revenue Bonds, AMT, Series B, 7.25% due 6/01/2020 (d) 540
A+ A1 1,250 Tucson, Arizona, Water Revenue Refunding Bonds, 6.50% due 7/01/2016 1,354
AA A1 2,000 University of Arizona, University Revenue Refunding Bonds, Series A, 6.20% due 6/01/2016 2,328
Puerto Rico -- 12.6%
AAA Aaa 2,000 Puerto Rico Commonwealth, GO, YCN, 8.132% due 7/01/2020 (c) (e) 2,278
A1+ VMIG1+ 2,100 Puerto Rico Commonwealth, Government Development Bank, Revenue Refunding Bonds,
VRDN, 3.25% due 12/01/2015 (a) 2,100
A Baa1 1,300 Puerto Rico Commonwealth, Refunding (Public Improvements), 4.50% due 7/01/2023 1,188
AAA Aaa 1,900 Puerto Rico Electric Power Authority, Power Revenue Bonds, LEVRRS, 8.478%
due 7/01/2023 (c) (e) 2,180
AAA Aaa 1,250 Puerto Rico Public Buildings Authority Revenue Bonds (Guaranteed Government Facilities),
Series B, 5% due 7/01/2027 (f) 1,237
-------
Total Investments (Cost -- $68,375) -- 103.8% 73,983
Liabilities in Excess of Other Assets -- (3.8%) (2,717)
-------
Net Assets -- 100.0% $71,266
=======
* Not Rated.
+ Highest short-term rating by Moody's Investors Service, Inc.
(a) 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, 1998.
(b) FGIC Insured.
(c) FSA Insured.
(d) MBIA Insured.
(e) The interest rate is subject to change periodically and inversely
based upon prevailing market rates. The interest rates shown are
those in effect at January 31, 1998.
(f) AMBAC Insured.
(g) Connie Lee Insured.
(h) Prerefunded.
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)
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
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of January 31, 1998
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $68,375,265) (Note 1a) $73,982,557
Cash 134,556
Receivables:
Securities sold $2,449,831
Interest 628,114
Beneficial interest sold 252,559 3,330,504
------------
Prepaid expenses and other assets 2,136
------------
Total assets 77,449,753
------------
Liabilities: Payables:
Securities purchased 5,795,433
Beneficial interest redeemed 200,560
Dividends to shareholders (Note 1e) 53,176
Investment adviser (Note 2) 33,470
Distributor (Note 2) 23,551 6,106,190
------------
Accrued expenses and other liabilities 77,493
------------
Total liabilities 6,183,683
------------
Net Assets: Net assets $71,266,070
============
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited number of
Consist of: shares authorized $130,974
Class B Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 483,991
Class C Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 9,882
Class D Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 23,640
Paid-in capital in excess of par 65,514,608
Accumulated realized capital losses on investments -- net (Note 5) (504,317)
Unrealized appreciation on investments -- net 5,607,292
------------
Net assets $71,266,070
============
Net Asset Value: Class A -- Based on net assets of $14,393,609 and 1,309,735 shares
of beneficial interest outstanding $10.99
============
Class B -- Based on net assets of $53,191,355 and 4,839,911 shares
of beneficial interest outstanding $10.99
============
Class C -- Based on net assets of $1,085,491 and 98,819 shares
of beneficial interest outstanding $10.98
============
Class D -- Based on net assets of $2,595,615 and 236,400 shares
of beneficial interest outstanding $10.98
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Six Months Ended
January 31, 1998
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned $2,145,521
(Note 1d):
Expenses: Investment advisory fees (Note 2) $201,114
Account maintenance & distribution fees -- Class B (Note 2) 139,371
Professional fees 28,673
Accounting services (Note 2) 22,890
Printing and shareholder reports 14,614
Transfer agent fees -- Class B (Note 2) 13,496
Registration fees 7,065
Pricing fees 3,168
Transfer agent fees -- Class A (Note 2) 2,872
Account maintenance & distribution fees -- Class C (Note 2) 2,835
Custodian fees 2,784
Trustees' fees and expenses 2,142
Account maintenance fees -- Class D (Note 2) 1,160
Transfer agent fees -- Class D (Note 2) 472
Transfer agent fees -- Class C (Note 2) 238
Other 1,991
------------
Total expenses 444,885
------------
Investment income -- net 1,700,636
------------
Realized & Realized gain on investments -- net 1,491,206
Unrealized Change in unrealized appreciation on investments -- net (786,654)
Gain (Loss) on ------------
Investments -- Net Net Increase in Net Assets Resulting from Operations $2,405,188
(Notes 1b, 1d & 3): ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
January 31, July 31,
Increase (Decrease) in Net Assets: 1998 1997
<S> <C> <C> <C>
Operations: Investment income -- net $1,700,636 $3,853,601
Realized gain on investments -- net 1,491,206 151,745
Change in unrealized appreciation on investments -- net (786,654) 2,230,318
------------ ------------
Net increase in net assets resulting from operations 2,405,188 6,235,664
------------ ------------
Dividends to Investment income -- net:
Shareholders Class A (356,321) (735,203)
(Note 1e): Class B (1,265,941) (2,958,031)
Class C (20,978) (56,040)
Class D (57,396) (104,327)
------------ ------------
Net decrease in net assets resulting from dividends to shareholders (1,700,636) (3,853,601)
------------ ------------
Beneficial Interest Net decrease in net assets derived from beneficial interest transactions (4,877,524) (11,798,372)
Transactions ------------ ------------
(Note 4):
Net Assets: Total decrease in net assets (4,172,972) (9,416,309)
Beginning of period 75,439,042 84,855,351
------------ ------------
End of period $71,266,070 $75,439,042
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
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: 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.87 $10.54 $10.46 $10.40 $11.01
Operating -------- -------- -------- -------- --------
Performance: Investment income -- net .28 .55 .54 .55 .57
Realized and unrealized gain (loss) on
investments -- net .12 .33 .08 .11 (.39)
-------- -------- -------- -------- --------
Total from investment operations .40 .88 .62 .66 .18
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income -- net (.28) (.55) (.54) (.55) (.57)
Realized gain on investments -- net -- -- -- (.01) (.22)
In excess of realized gain on investments -- net -- -- -- (.04) --
-------- -------- -------- -------- --------
Total dividends and distributions (.28) (.55) (.54) (.60) (.79)
-------- -------- -------- -------- --------
Net asset value, end of period $10.99 $10.87 $10.54 $10.46 $10.40
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 3.72%++++ 8.63% 6.04% 6.76% 1.62%
Return:** ======== ======== ======== ======== ========
Ratios to Expenses, net of reimbursement .82%* .79% .79% .80% .56%
Average ======== ======== ======== ======== ========
Net Assets: Expenses .82%* .79% .79% .83% .80%
======== ======== ======== ======== ========
Investment income -- net 5.05%* 5.21% 5.09% 5.44% 5.32%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $14,394 $14,012 $14,988 $14,893 $18,363
Data: ======== ======== ======== ======== ========
Portfolio turnover 38.66% 29.68% 36.39% 62.65% 53.35%
======== ======== ======== ======== ========
* Annualized.
** Total investment returns exclude the effects of sales loads.
++++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<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: 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.87 $10.54 $10.46 $10.40 $11.01
Operating -------- -------- -------- -------- --------
Performance: Investment income -- net .25 .50 .49 .50 .52
Realized and unrealized gain (loss) on
investments -- net .12 .33 .08 .11 (.39)
-------- -------- -------- -------- --------
Total from investment operations .37 .83 .57 .61 .13
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income -- net (.25) (.50) (.49) (.50) (.52)
Realized gain on investments -- net -- -- -- (.01) (.22)
In excess of realized gain on
investments -- net -- -- -- (.04) --
-------- -------- -------- -------- --------
Total dividends and distributions (.25) (.50) (.49) (.55) (.74)
-------- -------- -------- -------- --------
Net asset value, end of period $10.99 $10.87 $10.54 $10.46 $10.40
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 3.45%++++ 8.08% 5.49% 6.22% 1.11%
Return:** ======== ======== ======== ======== ========
Ratios to Expenses, net of reimbursement 1.33%* 1.30% 1.30% 1.31% 1.07%
Average ======== ======== ======== ======== ========
Net Assets: Expenses 1.33%* 1.30% 1.30% 1.33% 1.30%
======== ======== ======== ======== ========
Investment income -- net 4.54%* 4.70% 4.59% 4.92% 4.82%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands). $53,191 $58,282 $66,497 $72,090 $80,616
Data: ======== ======== ======== ======== ========
Portfolio turnover 38.66% 29.68% 36.39% 62.65% 53.35%
======== ======== ======== ======== ========
* Annualized.
** Total investment returns exclude the effects of sales loads.
++++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Class C
For the For the
Six Period
The following per share data and ratios have been derived Months For the Year Oct. 21,
from information provided in the financial statements. Ended Ended 1994+ to
Jan. 31, July 31, July 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.87 $10.54 $10.46 $10.05
Operating -------- -------- -------- --------
Performance: Investment income -- net .24 .49 .48 .37
Realized and unrealized gain on investments -- net .11 .33 .08 .46
-------- -------- -------- --------
Total from investment operations .35 .82 .56 .83
-------- -------- -------- --------
Less dividends and distributions:
Investment income -- net (.24) (.49) (.48) (.37)
Realized gain on investments -- net -- -- -- (.01)
In excess of realized gain on investments -- net -- -- -- (.04)
-------- -------- -------- --------
Total dividends and distributions (.24) (.49) (.48) (.42)
-------- -------- -------- --------
Net asset value, end of period $10.98 $10.87 $10.54 $10.46
======== ======== ======== ========
Total Investment Based on net asset value per share 3.31%++++ 7.97% 5.38% 8.53%++++
Return:** ======== ======== ======== ========
Ratios to Average Expenses 1.43%* 1.40% 1.40% 1.43%*
Net Assets: ======== ======== ======== ========
Investment income -- net 4.44%* 4.59% 4.49% 4.58%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $1,085 $957 $1,499 $729
Data: ======== ======== ======== ========
Portfolio turnover 38.66% 29.68% 36.39% 62.65%
======== ======== ======== ========
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Class D
For the For the
Six Period
The following per share data and ratios have been derived Months For the Year Oct. 21,
from information provided in the financial statements. Ended Ended 1994+ to
Jan. 31, July 31, July 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.86 $10.53 $10.45 $10.05
Operating -------- -------- -------- --------
Performance: Investment income -- net .27 .54 .53 .42
Realized and unrealized gain on investments -- net .12 .33 .08 .45
-------- -------- -------- --------
Total from investment operations .39 .87 .61 .87
-------- -------- -------- --------
Less dividends and distributions:
Investment income -- net (.27) (.54) (.53) (.42)
Realized gain on investments -- net -- -- -- (.01)
In excess of realized gain on investments -- net -- -- -- (.04)
-------- -------- -------- --------
Total dividends and distributions (.27) (.54) (.53) (.47)
-------- -------- -------- --------
Net asset value, end of period $10.98 $10.86 $10.53 $10.45
======== ======== ======== ========
Total Investment Based on net asset value per share 3.67%++++ 8.52% 5.93% 8.92%++++
Return:** ======== ======== ======== ========
Ratios to Average Expenses .92%* .89% .89% .93%*
Net Assets: ======== ======== ======== ========
Investment income -- net 4.95%* 5.11% 5.01% 5.23%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $2,596 $2,188 $1,871 $617
Data: ======== ======== ======== ========
Portfolio turnover 38.66% 29.68% 36.39% 62.65%
======== ======== ======== ========
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Arizona Municipal Bond Fund January 31, 1998
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
PricingSM System. Shares of Class A and Class D are sold with a front-
end sales charge. Shares of Class B and Class C may be subject to a
contingent deferred sales charge. All classes of shares have identical
voting, dividend, liquidation and other rights and the same terms and
conditions, except that Class B, Class C and Class D Shares bear certain
expenses related to the account maintenance of such shares, and Class B
and Class C Shares also bear certain expenses related to the
distribution of such shares. Each class has exclusive voting rights with
respect to matters relating to its account maintenance and distribution
expenditures. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments -- Municipal bonds and other portfolio
securities in which the Fund invests are traded primarily in the over-
the-counter municipal bond and money markets and are valued at the last
available bid price in the over-the-counter market or on the basis of
yield equivalents as obtained from one or more dealers that make markets
in the securities. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their settlement prices as
of the close of such exchanges. Short-term investments with remaining
maturities of sixty days or less are valued at amortized cost, which
approximates market value. Securities and assets for which market
quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of
Trustees of the Trust, including valuations furnished by a pricing
service retained by the Trust, which may utilize a matrix system for
valuations. The procedures of the pricing service and its valuations are
reviewed by the officers of the Trust under the general supervision of
the Trustees.
(b) Derivative financial instruments -- The Fund may engage in various
portfolio strategies to 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.
[bullet] 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.
(e) 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 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% --
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, 1998, MLFD earned underwriting
discounts and direct commissions 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 $87 $--
Class D $292 $3,710
For the six months ended January 31, 1998, MLPF&S received contingent
deferred sales charges of $71,522 and $200 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, 1998 were $27,197,190 and $30,637,114,
respectively.
Net realized and unrealized gains as of January 31, 1998 were as
follows:
Realized Unrealized
Gains Gains
Long-term investments $1,491,206 $5,607,292
---------- ----------
Total $1,491,206 $5,607,292
========== ==========
As of January 31, 1998, net unrealized appreciation for Federal income
tax purposes aggregated $5,607,292, of which $5,656,242 related to
appreciated securities and $48,950 related to depreciated securities.
The aggregate cost of investments at January 31, 1998 for Federal income
tax purposes was $68,375,265.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest transactions
was $4,877,524 and $11,798,372 for the six months ended January 31, 1998
and for the year ended July 31, 1997, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Six Months Dollar
Ended January 31, 1998 Shares Amount
Shares sold 62,591 $678,447
Shares issued to shareholders
in reinvestment of dividends 18,590 201,440
---------- ----------
Total issued 81,181 879,887
Shares redeemed (60,015) (648,213)
---------- ----------
Net increase 21,166 $231,674
========== ==========
Class A Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 135,108 $1,430,774
Shares issued to shareholders
in reinvestment of dividends 37,066 392,786
---------- ----------
Total issued 172,174 1,823,560
Shares redeemed (305,791) (3,233,977)
---------- ----------
Net decrease (133,617) $(1,410,417)
========== ==========
Class B Shares for the Six Months Dollar
Ended January 31, 1998 Shares Amount
Shares sold 213,582 $2,323,524
Shares issued to shareholders
in reinvestment of dividends 47,647 516,050
---------- ----------
Total issued 261,229 2,839,574
Automatic conversion of shares (3,387) (36,639)
Shares redeemed (777,543) (8,414,923)
---------- ----------
Net decrease (519,701) $(5,611,988)
========== ==========
Class B Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 617,462 $6,538,480
Shares issued to shareholders
in reinvestment of dividends 112,661 1,193,941
---------- ----------
Total issued 730,123 7,732,421
Automatic conversion of shares (33,885) (358,302)
Shares redeemed (1,646,309) (17,437,458)
---------- ----------
Net decrease (950,071)$(10,063,339)
========== ==========
Class C Shares for the Six Months Dollar
Ended January 31, 1998 Shares Amount
Shares sold 33,335 $365,422
Shares issued to shareholders
in reinvestment of dividends 1,049 11,355
---------- ----------
Total issued 34,384 376,777
Shares redeemed (23,614) (255,791)
---------- ----------
Net increase 10,770 $120,986
========== ==========
Class C Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 28,288 $298,514
Shares issued to shareholders
in reinvestment of dividends 3,437 36,392
---------- ----------
Total issued 31,725 334,906
Shares redeemed (86,000) (912,398)
---------- ----------
Net decrease (54,275) $(577,492)
========== ==========
Class D Shares for the Six Months Dollar
Ended January 31, 1998 Shares Amount
Shares sold 57,539 $624,264
Automatic conversion of shares 3,390 36,639
Shares issued to shareholders
in reinvestment of dividends 2,315 25,073
---------- ----------
Total issued 63,244 685,976
Shares redeemed (28,261) (304,172)
---------- ----------
Net increase 34,983 $381,804
========== ==========
Class D Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 44,242 $470,086
Automatic conversion of shares 33,915 358,302
Shares issued to shareholders
in reinvestment of dividends 4,452 47,135
---------- ----------
Total issued 82,609 875,523
Shares redeemed (58,869) (622,647)
---------- ----------
Net increase 23,740 $252,876
========== ==========
5. Capital Loss Carryforward:
At July 31, 1997, the Fund had a net capital loss carryforward of
approximately $798,000, 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
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
Robert E. Putney, III, 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
