MERRILL LYNCH
ARKANSAS
MUNICIPAL
BOND FUND
FUND LOGO
Annual Report
July 31, 1995
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.
<PAGE>
Merrill Lynch Arkansas
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, NJ
08543-9011
TO OUR SHAREHOLDERS
In the July quarter, economic data generally showed evidence of
slowing activity. Gross domestic product growth for the first three
months of 1995 was reported at 2.7%, the weakest showing in the past
18 months. Other signs of a sluggish economy included lackluster
durable goods orders, slowing growth in the manufacturing sector,
and three consecutive months of declines in the Index of Leading
Economic Indicators, an occurrence which has often (but not always)
forecast recessions. As a result, concerns arose that the economic
"soft landing" could turn into an actual recession. However, at the
same time there were also expectations that a few months of very
slow or zero growth would be followed by a pickup in economic
activity later in the year. This view was supported by the
stronger-than-expected employment data for June and an upward
revision in May's employment figures, as well as improving housing
activity measures and consumer confidence surveys.
Thus far in 1995, economic developments have been very positive for
the US stock and bond markets, and most US stock market averages
recently have attained record levels. In contrast, the US dollar has
been persistently weak, especially relative to the yen. Following
the Federal Reserve Board's cut in short-term interest rates in
early July, continued signs of a moderating expansion and
well-contained inflationary pressures could provide further
assurance that the peak in US interest rates is behind us, creating
a stronger foundation for higher stock and bond prices. On the other
hand, indications of reaccelerating growth and increasing
inflationary pressures would likely suggest that higher interest
rates are on the horizon, a negative development for the US
financial markets. The outcome of the current deliberations on
reducing the Federal budget deficit will also play a role in the
investment outlook for the US capital markets.
<PAGE>
The Municipal Market
Tax-exempt bond yields exhibited considerable volatility during the
three months ended July 31, 1995. Municipal bond yields initially
fell throughout May into early June as evidence of a slowing
domestic economy and moderate inflationary pressures accumulated. As
measured by the Bond Buyer Revenue Bond Index, yields of A-rated,
uninsured tax-exempt revenue bonds declined 35 basis points (0.35%)
to 5.94%. By late June, however, amid signs of a potentially
resurgent economy, particularly in the rebounding housing sector,
bond yields returned to their April quarter's levels of
approximately 6.30%. The lowering of short-term interest rates by
the Federal Reserve Board in early July temporarily restored
investor confidence and tax-exempt bond yields fell to 6.05%. As
additional economic indicators were released during July, investors
again saw signs that the economy was regaining momentum and that the
Federal Reserve Board action had been premature. Fears that an
expanding economy would have negative inflationary consequences
pushed municipal bond yields higher, ending the July 31, 1995
quarter essentially unchanged at 6.27%. US Treasury bond yields
exhibited a similar pattern of volatility during the July quarter.
However, US Treasury bond yields continued to decline, falling
approximately 50 basis points to 6.85%.
Municipal bonds have underperformed US Treasury securities for a
number of reasons. The record highs of the US equity market have
continued to attract retail investors seeking further capital gains.
Investor demand has also been diminished in recent months by the
"sticker shock" effect that periodically affects the municipal bond
market. Investors who had become accustomed to purchasing tax-exempt
securities in the 6.50%--7.00% range six to seven months ago have
demonstrated understandable reluctance to purchase similar
securities at current levels. The strong fundamental structure of
the municipal bond market, however, suggests that such hesitancy may
prove costly.
However, the major reason by far for the tax-exempt market's recent
underperformance has been concerns regarding the implication for
municipal bonds' tax advantage resulting from various proposed tax
law changes (for example, flat tax, value-added tax or national
sales tax) that have reduced investor demand for tax-exempt
products. Such concerns are likely to quickly recede as investors
realize that such, if any, changes are unlikely to be enacted before
late 1996 at the earliest. Long-term investors will also recall 1986
when similar tax proposals were made, municipal bond yields
initially rose, in some instances, to over 100% of taxable yields.
Tax-exempt bond yields quickly declined as investors' fears proved
to be unfounded.
<PAGE>
The municipal bond market's strong technical position has diminished
somewhat in recent months. New-issue supply over the last six months
has totaled approximately $71 billion, or a decline of over 20%
compared to the corresponding period in 1994. In recent months,
however, municipalities issued approximately $41 billion in new
securities, which represents only a 6% decline versus the same
period a year earlier. Investor demand has remained muted in recent
months despite significant funds available to investors. By the end
of July investors, both individual and institutional, are expected
to have received as much as $80 billion from tax-exempt bond
maturities, coupon payments and the proceeds of early bond
redemptions. Little new money has entered the municipal market in
recent months, largely in response to the factors mentioned above.
Consequently, much of the technical support the municipal market
enjoyed earlier this year has evaporated, causing municipal bond
yields to decline at a slower rate than their taxable counterparts.
However, the recent relative underperformance of municipal bonds has
made them particularly attractive to long-term investors. Tax-exempt
bonds currently yield well over 90% of US Treasury securities. In
some instances, A-rated, long-term revenue bonds have yielded almost
95% of US Treasury bonds. Analysts usually consider municipal bonds
yielding over 82% of US Treasury securities to be historically
attractive. With inflation-adjusted, "real" after-tax equivalent tax-
exempt yields of over 6.50%, municipal securities appear to
represent considerable value.
Current tax-exempt yield levels appear to be overcompensating for
any proposed changes in tax law that can reasonably be expected to
be enacted. As Congressional hearings on this matter would continue
into 1996, and the revenue losses resultant from such changes become
more apparent, the likelihood of any significant changes to tax
codes and the resultant decline of municipal bonds' inherent tax
advantage should decline. Under such a scenario, tax-exempt bond
yields would quickly decline and currently available municipal bond
yields would return to their normal historic relationship.
Fiscal Year in Review
At the beginning of the fiscal year ended July 31, 1995, the bond
market was very volatile. As a result, we maintained a defensive
investment strategy from August 1994 to November 1994. As interest
rates peaked in November, we shifted to a more constructive posture
on interest rates and remained constructive until the end of June.
In July, we shifted back to a cautious view of the bond market. The
municipal market in Arkansas continued to see very little activity
during the past year. This was in response to the small amount of
new issuance (less than $750 million) coming to market in the
Arkansas tax-exempt market. This represented a decline of 17.5% from
the previous fiscal year. We kept cash reserves at a minimum in
order to seek to enhance income for our shareholders. This strategy
allowed the Fund to provide an attractive total return. Looking
ahead, we expect our strategy to consist of seeking to enhance the
Fund's total returns and provide an attractive level of tax-exempt
income for shareholders.
<PAGE>
In Conclusion
We appreciate your ongoing interest in Merrill Lynch Arkansas
Municipal Bond Fund, and we look forward to assisting you with your
financial needs in the months and years ahead.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Vice President and Portfolio Manager
September 7, 1995
PERFORMANCE DATA
About Fund Performance
Since October 21, 1994, investors have been 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.
<PAGE>
* 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).
Performance data for all of the Fund's shares are presented in the
"Total Return Based on a $10,000 Investment" graphs on page 4, the
"Recent Performance Results" table below and the "Aggregate Total
Return" tables on page 4.
The "Recent Performance Results" table shows investment results
before the deduction of any sales charges for Class A and Class B
Shares for the since inception (September 30, 1994) and 3-month
periods ended July 31, 1995 and for Class C and Class D Shares for
the since inception (October 21, 1994) and 3-month periods ended
July 31, 1995. All data in this table assume imposition of the
actual total expenses incurred by each class of shares during the
relevant period.
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>
Since Inception 3 Month
7/31/95 4/30/95 Inception++ % Change++ % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $10.29 $10.15 $10.00 +2.90% +1.38%
Class B Shares* 10.29 10.15 10.00 +2.90 +1.38
Class C Shares* 10.30 10.15 9.92 +3.83 +1.48
Class D Shares* 10.29 10.15 9.92 +3.73 +1.38
Class A Shares--Total Return* +8.13(1) +2.79(2)
Class B Shares--Total Return* +7.68(3) +2.66(4)
Class C Shares--Total Return* +8.13(5) +2.73(6)
Class D Shares--Total Return* +8.54(7) +2.76(8)
Class A Shares--Standardized 30-day Yield 5.22%
Class B Shares--Standardized 30-day Yield 4.92%
Class C Shares--Standardized 30-day Yield 4.82%
Class D Shares--Standardized 30-day Yield 5.12%
<PAGE>
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
++Class A and Class B Shares commenced operations on 9/30/94. Class
C and Class D Shares commenced operations on 10/21/94.
(1)Percent change includes reinvestment of $0.488 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.143 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.446 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.129 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.398 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.127 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.445 per share ordinary
income dividends.
(8)Percent change includes reinvestment of $0.140 per share ordinary
income dividends.
</TABLE>
PERFORMANCE DATA (concluded)
Total Return Based on a $10,000 Investment--Class A Shares and Class B Shares
A line graph depicting the growth of an investment in the Fund's Class A Shares
and Class B Shares compared to growth of an investment in the Lehman Brothers
Municipal Bond Index. Beginning and ending values are:
9/30/94** 7/95
ML Arkansas Municipal Bond Fund++--
Class A Shares* $ 9,600 $10,368
ML Arkansas Municipal Bond Fund++--
Class B Shares* $10,000 $10,380
Lehman Brothers Municipal Bond Index++++ $10,000 $10,910
<PAGE>
Total Return Based on a $10,000 Investment--Class C Shares and Class D Shares
A line graph depicting the growth of an investment in the Fund's Class C Shares
and Class D Shares compared to growth of an investment in the Lehman Brothers
Municipal Bond Index. Beginning and ending values are:
10/21/94** 7/95
ML Arkansas Municipal Bond Fund++--
Class C Shares* $10,000 $10,713
ML Arkansas Municipal Bond Fund++--
Class D Shares* $ 9,600 $10,420
Lehman Brothers Municipal Bond Index++++ $10,000 $11,107
[FN]
*Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
**Commencement of Operations.
++ML Arkansas Municipal Bond Fund invests primarily in long-term investment-
grade obligations issued by or on behalf of the State of Arkansas, its
political subdivisions, agencies and instrumentalities and obligations
of other qualifying issuers.
++++This unmanaged Index consists of long-term revenue bonds, prerefunded
bonds, general obligation bonds and insured bonds.
Past performance is not predictive of future performance.
Aggregate Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Inception (9/30/94)
through 6/30/95 +7.46% +3.16%
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
<PAGE>
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Inception (9/30/94)
through 6/30/95 +7.06% +3.06%
[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*
Inception (10/21/94)
through 6/30/95 +7.41% +6.41%
[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*
Inception (10/21/94)
through 6/30/95 +7.88% +3.56%
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
<PAGE>
PORTFOLIO ABBREVIATIONS
To simplify the listings of Merrill Lynch Arkansas
Municipal Bond Fund's portfolio holdings in the Schedule
of Investments, we have abbreviated the names of many
of the securities according to the list at right.
AMT Alternative Minimum Tax (subject to)
GO Government Obligation Bonds
IDR Industrial Development Revenue Bonds
PCR Pollution Control Revenue Bonds
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Arkansas--84.3%
<S> <S> <C> <S> <C>
AAA NR* $1,420 Arkansas State Development Finance Authority, S/F Mortgage Revenue
Bonds, AMT, Series A, 7.30% due 3/01/2013 (b) $ 1,511
Arkansas State Development Finance Authority, Water Revenue Bonds
(Revolving Loan Fund) (c):
AAA Aaa 400 Refunding, Series B, 5.25% due 12/01/2010 388
AAA Aaa 100 Series A, 5.75% due 6/01/2018 98
AA Aa 350 Arkansas State Refunding Bonds (Waste Disposal and Pollution), Series B,
6.25% due 7/01/2020 359
Arkansas State Student Loan Authority Revenue Bonds, AMT:
NR* VMIG1++ 100 Series B-4, VRDN, 4% due 6/01/2010 (a) 100
NR* A 350 Sub-Series B, 7.25% due 6/01/2009 376
AA Aa 455 Arkansas State Water Resources Development Bonds, Series A, UT,
5.50% due 7/01/2020 428
BBB Baa2 250 Baxter County, Arkansas, IDR, Refunding (Aeroquip-Trinova Corp. Project),
5.80% due 10/01/2013 236
AA- A1 350 Blytheville, Arkansas, Solid Waste Recycling and Sewer Treatment Revenue
Bonds (Nucor Corp. Project), AMT, 6.375% due 1/01/2023 352
<PAGE>
A- A3 1,000 Camden, Arkansas, Environmental Improvement Revenue Bonds (International
Paper Co. Project), AMT, Series A, 7.625% due 11/01/2018 1,160
A1+ P1 300 Clark County, Arkansas, Solid Waste Disposal Revenue Bonds (Reynolds Metals
Co. Project), VRDN, AMT, 3.90% due 8/01/2022 (a) 300
NR* P1 200 Crosset, Arkansas, PCR (Georgia-Pacific Corp. Project), VRDN, 3.80%
due 10/01/2007 (a) 200
AAA Aaa 350 Fort Smith, Arkansas, Water, Sewer and Construction Revenue Refunding
Bonds, 6% due 10/01/2012 (c) 356
BBB Baa2 200 Jefferson County, Arkansas, PCR, Refunding (Arkansas Power and Light Co.
Project), 6.30% due 6/01/2018 202
A1+ Aaa 300 Little Rock, Arkansas, Health Facilities Board, Hospital Revenue Bonds
(Southwest Hospital Capital Guaranty), VRDN, 3.80% due 10/01/2018 (a) 300
AAA Aaa 375 Little Rock, Arkansas, Municipal Airport Revenue Refunding Bonds,
6% due 11/01/2014 (c) 379
AA+ Aa 500 Little Rock, Arkansas, Refunding Bonds (Capital Improvement),
6.25% due 2/01/2008 514
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Arkansas (concluded)
<S> <S> <C> <S> <C>
AAA Aaa $ 550 Little Rock, Arkansas, School District, Revenue Refunding Bonds,
5.50% due 1/01/2020 (e) $ 518
AAA Aaa 400 North Little Rock, Arkansas, Electric Revenue Refunding Bonds, Series A,
6.50% due 7/01/2015 (c) 441
BBB Baa2 300 Pope County, Arkansas, PCR, Refunding (Arkansas Power and Light Co.
Project), 6.30% due 12/01/2016 305
A- NR* 500 Pulaski County, Arkansas, Hospital Revenue Bonds (Arkansas Children's
Hospital Project), Series A, 6.20% due 3/01/2022 498
AAA Aaa 350 Pulaski County, Arkansas, Special School District, Revenue Refunding Bonds,
5.25% due 2/01/2019 (d) 322
AAA Aaa 500 Saline County, Arkansas, Retirement, Housing and Healthcare Facilities Board,
Revenue Refunding Bonds (Evangelist Lutheran Project), 5.80% due 6/01/2011 (e) 502
<PAGE>
Puerto Rico--12.3%
A Baa1 325 Puerto Rico Commonwealth, GO, UT, 6.50% due 7/01/2023 335
A Baa1 320 Puerto Rico Commonwealth, Highway and Transportation Authority, Highway
Revenue Bonds, Series T, 6.625% due 7/01/2018 332
BBB- NR* 425 Puerto Rico Industrial, Tourist, Educational, Medical and Environmental
Control Facilities Financing Authority, Higher Education Revenue Bonds
(PolyTechnic University of Puerto Rico Project), Series A, 5.50%
due 8/01/2024 378
A+ A 400 Puerto Rico Telephone Authority, Revenue Refunding Bonds, Series L,
5.75% due 1/01/2011 395
Total Investments (Cost--$10,836)--96.6% 11,285
Other Assets Less Liabilities--3.4% 392
-------
Net Assets--100.0% $11,677
=======
<FN>
(a)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate
in effect at July 31, 1995.
(b)GNMA Insured.
(c)MBIA Insured.
(d)FSA Insured.
(e)AMBAC Insured.
*Not Rated.
++Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche
LLP.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of July 31, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$10,835,745) (Note 1a) $ 11,285,469
Cash 23,478
Receivables:
Interest $ 176,280
Investment adviser (Note 2) 53,397 229,677
------------
Deferred organization expenses (Note 1e) 51,516
Prepaid registration fees and other assets (Note 1e) 135,750
------------
Total assets 11,725,890
------------
Liabilities: Payables:
Dividends to shareholders (Note 1f) 11,475
Distributor (Note 2) 3,544
Beneficial interest redeemed 8 15,027
------------
Accrued expenses and other liabilities 33,776
------------
Total liabilities 48,803
------------
Net Assets: Net assets $ 11,677,087
============
Net Assets Class A Shares of beneficial interest, $.10 par value,
Consist of: unlimited number of shares authorized $ 21,871
Class B Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 79,146
Class C Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 5,418
Class D Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 7,024
Paid-in capital in excess of par 11,277,151
Accumulated realized capital losses on investments--net
(Note 5) (163,247)
Unrealized appreciation on investments--net 449,724
------------
Net assets $ 11,677,087
============
Net Asset Value: Class A--Based on net assets of $2,250,895 and 218,710 shares
of beneficial interest outstanding $ 10.29
============
Class B--Based on net assets of $8,145,388 and 791,459 shares
of beneficial interest outstanding $ 10.29
============
Class C--Based on net assets of $557,855 and 54,180 shares
of beneficial interest outstanding $ 10.30
<PAGE> ============
Class D--Based on net assets of $722,949 and 70,239 shares
of beneficial interest outstanding $ 10.29
============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Period
September 30, 1994++
to July 31, 1995
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 475,911
(Note 1d):
Expenses: Professional fees $ 62,519
Investment advisory fees (Note 2) 43,362
Account maintenance and distribution fees--Class B (Note 2) 28,622
Accounting services (Note 2) 26,825
Printing and shareholder reports 19,595
Amortization of organization expenses (Note 1e) 10,330
Registration fees (Note 1e) 9,065
Transfer agent fees--Class B (Note 2) 5,056
Pricing fees 2,518
Custodian fees 1,449
Transfer agent fees--Class A (Note 2) 1,295
Account maintenance and distribution fees--Class C (Note 2) 811
Trustees' fees and expenses 368
Account maintenance fees--Class D (Note 2) 277
Transfer agent fees--Class D (Note 2) 199
Transfer agent fees--Class C (Note 2) 111
Other 606
------------
Total expenses before reimbursement 213,008
Reimbursement of expenses (Note 2) (173,025)
------------
Total expenses after reimbursement 39,983
------------
Investment income--net 435,928
------------
<PAGE>
Realized & Realized loss on investments--net (163,247)
Unrealized Unrealized appreciation on investments--net 449,724
Gain (Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 722,405
(Notes 1b, 1d & 3): ============
<FN>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Changes in Net Assets
<CAPTION>
For the Period
September 30, 1994++
Increase (Decrease) in Net Assets: to July 31, 1995
<S> <S> <C>
Operations: Investment income--net $ 435,928
Realized loss on investments--net (163,247)
Unrealized appreciation on investments--net 449,724
------------
Net increase in net assets resulting from operations 722,405
------------
Dividends to Investment income--net:
Shareholders Class A (103,823)
(Note 1f): Class B (309,723)
Class C (6,757)
Class D (15,625)
------------
Net decrease in net assets resulting from dividends to shareholders (435,928)
------------
Beneficial Net increase in net assets derived from beneficial interest transactions 11,290,610
Interest ------------
Transactions
(Note 4):
Net Assets: Total increase in net assets 11,577,087
Beginning of period 100,000
------------
End of period $ 11,677,087
============
<FN>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived For the Period For the Period
from information provided in the financial statements. September 30, 1994++ October 21, 1994++
to July 31, 1995 to July 31, 1995
Increase (Decrease) in Net Asset Value: Class A Class B Class C Class D
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.00 $ 10.00 $ 9.92 $ 9.92
Operating -------- -------- -------- --------
Performance: Investment income--net .50 .46 .41 .46
Realized and unrealized gain on investments--net .29 .29 .38 .37
-------- -------- -------- --------
Total from investment operations .79 .75 .79 .83
-------- -------- -------- --------
Less dividends from investment income--net (.50) (.46) (.41) (.46)
-------- -------- -------- --------
Net asset value, end of period $ 10.29 $ 10.29 $ 10.30 $ 10.29
======== ======== ======== ========
Total Investment Based on net asset value per share 8.13%+++ 7.68%+++ 8.13%+++ 8.54%+++
Return:** ======== ======== ======== ========
Ratios to Expenses, excluding account maintenance
Average and distribution fees and net of reimbursement .11%* .13%* .25%* .19%*
Net Assets: ======== ======== ======== ========
Expenses, net of reimbursement .11%* .63%* .85%* .29%*
======== ======== ======== ========
Expenses 2.32%* 2.83%* 2.90%* 2.37%*
======== ======== ======== ========
Investment income--net 5.94%* 5.41%* 5.00%* 5.64%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 2,251 $ 8,145 $ 558 $ 723
Data: ======== ======== ======== ========
Portfolio turnover 28.64% 28.64% 28.64% 28.64%
======== ======== ======== ========
<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>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Arkansas Municipal Bond Fund (the "Fund") is part of
the 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. Prior to
commencement of operations on September 30, 1994, the Fund had no
operations other than those relating to organizational matters and
the issue of 5,000 Class A Shares and 5,000 Class B Shares of
beneficial interest of the Fund to Fund Asset Management, L.P.
("FAM") for $100,000. 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 are traded primarily in the over-the-counter municipal
bond and money markets and are valued at the last available bid
price or yield equivalents as obtained by the Fund's pricing service
from one or more dealers that make markets in such securities.
Financial futures contracts and options thereon, which are traded on
exchanges, are valued at their last sale price as of the close of
such exchanges. Short-term investments with a remaining maturity of
sixty days or less are valued on an amortized cost basis, 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.
(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.
<PAGE>
* 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 portfolio holdings 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) 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 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.
<PAGE>
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. For the year ended July 31, 1995, FAM earned
fees of $43,362, all of which was voluntarily waived. FAM also
voluntarily reimbursed the Fund additional expenses of $129,663.
Pursuant to the distribution plans ("the Distribution Plans")
adopted by the Fund in accordance with Rule 12b-l 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 period September 30, 1994 to July 31, 1995, 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 $498 $6,855
Class D $592 $7,591
For the period September 30, 1994 to July 31, 1995, MLPF&S received
contingent deferred sales charges of $1,549 and $1 relating to
transactions in Class B and Class C Shares, respectively.
<PAGE>
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, MLFD, MLFDS, MLPF&S, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the period September 30, 1994 to July 31, 1995, were $12,410,989
and $2,391,258, respectively.
Net realized and unrealized gains (losses) as of July 31, 1995 were
as follows:
Realized Unrealized
Losses Gains
Long-term investments $ (83,047) $ 449,724
Financial futures contracts (80,200) --
------------ ------------
Total $ (163,247) $ 449,724
============ ============
As of July 31, 1995, net unrealized appreciation for Federal income
tax purposes aggregated $449,724, of which $491,385 related to
appreciated securities and $41,661 related to depreciated
securities. The aggregate cost of investments at July 31, 1995 for
Federal income tax purposes was $10,835,745.
4. Beneficial Interest Transactions:
Net increase in net assets derived from beneficial interest
transactions was $11,290,610 for the period ended July 31, 1995.
Transactions in shares of beneficial interest for each class were as
follows:
<PAGE>
Class A Shares
for the Period
September 30, 1994++ Dollar
to July 31, 1995 Shares Amount
Shares sold 236,456 $ 2,367,098
Shares issued to share-
holders in reinvestment
of dividends 1,254 12,677
------------ ------------
Total issued 237,710 2,379,775
Shares redeemed (24,000) (237,008)
------------ ------------
Net increase 213,710 $ 2,142,767
============ ============
[FN]
++Prior to September 30, 1994 (commencement of operations), the Fund
issued 5,000 shares to FAM for $50,000.
Class B Shares for the Period
September 30, 1994++ Dollar
to July 31, 1995 Shares Amount
Shares sold 855,458 $ 8,567,269
Shares issued to share-
holders in reinvestment
of dividends 5,048 51,093
------------ ------------
Total issued 860,506 8,618,362
Shares redeemed (74,047) (736,801)
------------ ------------
Net increase 786,459 $ 7,881,561
============ ============
[FN]
++Prior to September 30, 1994 (commencement of operations), the Fund
issued 5,000 shares to FAM for $50,000.
<PAGE>
Class C Shares for the Period
October 21, 1994++ Dollar
to July 31, 1995 Shares Amount
Shares sold 54,363 $ 556,059
Shares issued to share-
holders in reinvestment
of dividends 670 6,902
------------ ------------
Total issued 55,033 562,961
Shares redeemed (853) (8,722)
------------ ------------
Net increase 54,180 $ 554,239
============ ============
[FN]
++Commencement of Operations.
Class D Shares for the Period
October 21, 1994++ Dollar
to July 31, 1995 Shares Amount
Shares sold 74,178 $ 748,590
Shares issued to share-
holders in reinvestment
of dividends 958 9,831
------------ ------------
Total issued 75,136 758,421
Shares redeemed (4,897) (46,378)
------------ ------------
Net increase 70,239 $ 712,043
============ ============
[FN]
++Commencement of Operations.
5. Capital Loss Carryforward:
At July 31, 1995, the Fund had a net capital loss carryforward of
approximately $6,000, all of which expires in 2003. This amount will
be available to offset like amounts of any future taxable gains.
<PAGE>
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
Merrill Lynch Arkansas Municipal Bond Fund of
Merrill Lynch Multi-State Municipal Series Trust:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of Merrill Lynch
Arkansas Municipal Bond Fund of Merrill Lynch Multi-State Municipal
Series Trust as of July 31, 1995, the related statements of
operations and changes in net assets, and the financial highlights
for the period September 30, 1994 (commencement of operations) to
July 31, 1995. These financial statements and the financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial
statements and the financial highlights based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned at July 31,
1995 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Merrill Lynch Arkansas Municipal Bond Fund of Merrill Lynch Multi-
State Municipal Series Trust as of July 31, 1995, the results of its
operations, the changes in its net assets, and the financial
highlights for the period September 30, 1994 to July 31, 1995 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
September 7, 1995
</AUDIT-REPORT>
<PAGE>
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid monthly by
Merrill Lynch Arkansas Municipal Bond Fund during its taxable period
ended July 31, 1995 qualify as tax-exempt interest dividends for
Federal income tax purposes.
Additionally, there were no capital gains distributions during the
period.
Please retain this information for your records.
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
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
