MERRILL LYNCH
ARKANSAS
MUNICIPAL
BOND FUND
FUND LOGO
Semi-Annual Report
January 31, 1996
<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
Donald C. Burke, Vice President
Vincent R. Giordano, Vice President
Kenneth A. Jacob, Vice President
Fred Stuebe, Portfolio Manager
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
<PAGE>
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 Arkansas
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, NJ
08543-9011
TO OUR SHAREHOLDERS
Although the partial shutdown of the US Government curtailed the
release of most economic data in the latter part of the six-month
period ended January 31, 1996, it was nonetheless apparent that
gross domestic product (GDP) growth was losing momentum. Consumer
spending is barely growing, the industrial sector is at a virtual
standstill and, despite lower mortgage rates, there is little or no
pick-up in housing activity. With inflationary pressures subdued,
the Federal Reserve Board responded to the slowing economy by
continuing to modestly lower short-term interest rates.
Historically, it has taken some time for shifts in monetary policy
to have an impact on economic growth. Therefore, the Federal Reserve
Board's gradual shift to lowering interest rates, which began early
last year, may not be reflected in a pick-up in real economic growth
until later this year.
The impasse between the Clinton Administration and Congress over the
Federal budget continues, although both sides have made concessions
since the debate began. It appears that investors are currently
focusing on the progress that has been made rather than on the
differences that remain. Initially, President Clinton proposed
deficits of about $190 billion annually through fiscal year 2002,
but now proposes balanced budgets, as do the Republicans. Current
indications are that a piecemeal budget accord is the most likely
outcome. Even without the proposed policy changes, it appears that
the US Federal budget deficit would remain stable at about 2% of GDP
for the rest of the decade. This would be far better than is the
case for most Group of Seven industrial nations, and for the United
States would represent a great improvement over the last 15 years.
Although this may fall short of investors' best expectations, it
appears that the Federal budget debate over the past year has
resulted in a trend toward a more conservative fiscal policy.
<PAGE>
The Municipal Market
The municipal bond market rallied strongly during the six months
ended January 31, 1996. Long-term, tax-exempt revenue bond yields,
as measured by the Bond Buyer Revenue Bond Index, declined over 65
basis points (0.65%) to end the January period at 5.69%. Continued
weak economic conditions coupled with low inflation fostered a very
positive environment for almost all fixed-income investments during
the last three months of 1995. Long-term US Treasury bond yields
also declined approximately 65 basis points to 6.00% by January 31,
1996. Both US Treasury and long-term tax-exempt bond yields are near
their lowest levels in the past two years.
The municipal bond market had to contend with a number of
difficulties for much of 1995. Various tax reform proposals have
made the future tax advantage of municipal bonds uncertain. This
has, at a minimum, reduced the overall demand for tax-exempt
securities. At the same time, as municipal bond yields declined, tax-
exempt authorities have rushed to issue debt at near historic low
yield levels. During the six-month period ended January 31, 1996,
approximately $90 billion in municipal securities were underwritten,
an increase of over 30% compared to the same period last year.
However, as early 1995 issuance was significantly reduced, the last
12 months issuance of approximately $160 billion remained the same
as that issued a year earlier. Tax-exempt bond yields declined
throughout the six months ended January 31, 1996, despite investor
uncertainty and increased supply pressures.
It is likely that the municipal market will regain much of the
technical support it enjoyed earlier in 1995. 1995 issuance remained
significantly below levels underwritten in 1993, when over $290
billion in long-term tax-exempt securities were issued. Also,
municipal investors received over $25 billion in bond maturities,
coupon income and early redemptions on January 1, 1996. This $25
billion is almost twice the average monthly issuance for 1995. The
amount of outstanding municipal securities will continue to decline
throughout 1996 and into early 1997. As the uncertainties
surrounding proposed tax reforms are resolved in 1996, the tax-
exempt bond market's renewed technical position should provide
support to municipal bond prices.
<PAGE>
Many of the features that made tax-exempt products attractive to
investors last year are still in place. Long-term, A-rated municipal
revenue bonds continue to yield well over 90% of comparable US
Treasury bond yields. Historically, analysts have considered yields
in excess of 82% attractive for long-term investors. For example,
currently available tax-exempt bond yields generate taxable
equivalent yields in excess of 8.50% for an investor in the 36%
Federal income tax bracket. While the uncertainties regarding
potential changes in current tax law remain, it appears that, at
current price levels, bond investors have discounted at least some
of the uncertainty.
Looking ahead, it may be unreasonable to expect to duplicate the
double-digit returns produced by most tax-exempt issues in 1995,
given current municipal bond yields. Municipal bond yields would
have to decline to levels not seen since the 1960s in order to
generate such significant returns in the coming years. While the
current economic environment may still justify additional declines
in interest rates, it may be prudent to expect some period of
consolidation before the interest rate decline resumes. Tax-exempt
bond market performance in 1996 is likely to be generated more by
enhancing current income and limiting credit risk than by
significant interest rate declines.
Portfolio Strategy
During the six-month period ended January 31, 1996, the continued
decline of interest rates caused us to shift the Fund's portfolio
strategy from a neutral posture to one that is more constructive on
interest rates. Therefore, we extended the Fund's average portfolio
maturity in order to seek to enhance capital appreciation. New-issue
volume in the Arkansas tax-exempt market totaled just over $600
million in bonds during the six months ended January 31, 1996. With
the slight increase of new issuance in the State of Arkansas and no
significant increase on the horizon, we kept the Fund's cash reserve
position at approximately 1%--3% of net assets. Looking ahead, our
ongoing strategy will seek to maintain an attractive level of income
as the Fund's net asset values benefit from the continued advance in
bond prices.
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
<PAGE>
(Vincent R. Giordano)
Vincent R. Giordano
Vice President
(Fred K. Stuebe)
Fred K. Stuebe
Portfolio Manager
March 5, 1996
We are pleased to announce that Fred K. Stuebe is responsible for
the day-to-day management of Merrill Lynch Arkansas Municipal Bond
Fund. Mr. Stuebe has been employed by Merrill Lynch Asset
Management, L.P. (an affiliate of the Fund's investment adviser)
since 1989 as Vice President.
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.
* 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).
None of the past results shown should be considered a representation
of future performance. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Dividends paid to each class
of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month
1/31/96 10/31/95 1/31/95 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $10.62 $10.49 $9.97 + 6.52% + 1.24%
Class B Shares* 10.62 10.49 9.97 + 6.52 + 1.24
Class C Shares* 10.63 10.50 9.97 + 6.62 + 1.24
Class D Shares* 10.62 10.50 9.97 + 6.52 + 1.14
Class A Shares--Total Return* + 12.54(1) + 2.56(2)
Class B Shares--Total Return* + 11.97(3) + 2.43(4)
Class C Shares--Total Return* + 11.97(5) + 2.40(6)
Class D Shares--Total Return* + 12.43(7) + 2.44(8)
Class A Shares--Standardized 30-day Yield 4.75%
Class B Shares--Standardized 30-day Yield 4.43%
Class C Shares--Standardized 30-day Yield 4.34%
Class D Shares--Standardized 30-day Yield 4.65%
<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 $0.571 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.138 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.518 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.124 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.508 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.122 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.561 per share ordinary
income dividends.
(8)Percent change includes reinvestment of $0.135 per share ordinary
income dividends.
</TABLE>
<PAGE>
PERFORMANCE DATA (continued)
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
9/30/94--12/31/94 $10.00 $ 9.71 -- $0.157 - 1.31%
1995 9.71 10.64 -- 0.574 +15.85
1/1/96--1/31/96 10.64 10.62 -- 0.032 + 0.21
------
Total $0.763
Cumulative total return as of 1/31/96: +14.57%**
<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>
<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>
9/30/94--12/31/94 $10.00 $ 9.71 -- $0.144 - 1.44%
1995 9.71 10.64 -- 0.522 +15.26
1/1/96--1/31/96 10.64 10.62 -- 0.029 + 0.18
------
Total $0.695
Cumulative total return as of 1/31/96: +13.80%**
<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 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 $ 9.92 $ 9.72 -- $0.102 - 0.97%
1995 9.72 10.65 -- 0.512 +15.14
1/1/96-1/31/96 10.65 10.63 -- 0.029 + 0.18
------
Total $0.643
Cumulative total return as of 1/31/96: +14.22%**
<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>
PERFORMANCE DATA (concluded)
<TABLE>
Performance Summary--Class D Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $ 9.92 $ 9.71 -- $0.121 - 0.88%
1995 9.71 10.64 -- 0.564 +15.73
1/1/96-1/31/96 10.64 10.62 -- 0.032 + 0.20
------
Total $0.717
Cumulative total return as of 1/31/96: +14.95%**
<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>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year ended 12/31/95 +15.85% +11.21%
Inception (9/30/94)
through 12/31/95 +11.29 + 7.72
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year ended 12/31/95 +15.26% +11.26%
Inception (9/30/94)
through 12/31/95 +10.72 + 8.38
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year ended 12/31/95 +15.14% +14.14%
Inception (10/21/94)
through 12/31/95 +11.61 +11.61
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
<PAGE>
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year ended 12/31/95 +15.73% +11.10%
Inception (10/21/94)
through 12/31/95 +12.18 + 8.41
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
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
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Arkansas--91.5%
<S> <S> <C> <S> <C>
AAA NR* $ 1,400 Arkansas State Development Finance Authority, S/F Mortgage Revenue
Bonds, AMT, Series A, 7.30% due 3/01/2013 (b) $ 1,473
Arkansas State Development Finance Authority, Water Revenue Bonds
(Revolving Loan Fund) (c):
AAA Aaa 525 7% due 6/01/2001 (a) 600
AAA Aaa 405 5.75% due 6/01/2018 420
AA Aa 350 Arkansas State Refunding Bonds (Waste Disposal and Pollution), Series B,
6.25% due 7/01/2020 370
<PAGE>
NR* A 350 Arkansas State Student Loan Authority Revenue Bonds, AMT, Sub-Series B,
7.25% due 6/01/2009 386
AA Aa 455 Arkansas State Water Resources Development Bonds, Series A, UT, 5.50%
due 7/01/2020 467
BBB Baa2 275 Baxter County, Arkansas, IDR, Refunding (Aeroquip-Trinova Corp.
Project), 5.80% due 10/01/2013 279
AA- A1 350 Blytheville, Arkansas, Solid Waste Recycling and Sewer Treatment Revenue
Bonds (Nucor Corp. Project), AMT, 6.375% due 1/01/2023 369
A- A3 1,000 Camden, Arkansas, Environmental Improvement Revenue Bonds (International
Paper Co. Project), AMT, Series A, 7.625% due 11/01/2018 1,186
AAA Aaa 350 Fort Smith, Arkansas, Water, Sewer and Construction Revenue Refunding
Bonds, 6% due 10/01/2012 (c) 374
AAA Aaa 250 Independence County, Arkansas, PCR, Refunding (Arkansas Power and Light
Co. Project), 6.25% due 1/01/2021 (d) 269
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Rating Ratings Amount Issue (Note 1a)
Arkansas (concluded)
<S> <S> <C> <S> <C>
BBB Baa2 $ 200 Jefferson County, Arkansas, PCR, Refunding (Arkansas Power and Light
Co. Project), 6.30% due 6/01/2018 $ 207
AAA Aaa 375 Little Rock, Arkansas, Municipal Airport Revenue Refunding Bonds, 6%
due 11/01/2014 (c) 393
AA+ Aa 500 Little Rock, Arkansas, Refunding Bonds (Capital Improvement), 6.25%
due 2/01/2008 524
AAA Aaa 250 Little Rock, Arkansas, School District, Revenue Refunding Bonds, 5.50%
due 1/01/2020 (e) 247
NR* A1 500 Little Rock, Arkansas, Sewer and Construction Revenue Refunding Bonds,
5.50% due 8/01/2014 507
<PAGE>
AAA Aaa 400 North Little Rock, Arkansas, Electric Revenue Refunding Bonds, Series A,
6.50% due 7/01/2015 (c) 471
Pope County, Arkansas, PCR, Refunding (Arkansas Power and Light Co. Project):
BBB Baa2 300 6.30% due 12/01/2016 310
BBB- Baa3 250 6.30% due 11/01/2020 253
A- NR* 500 Pulaski County, Arkansas, Hospital Revenue Bonds (Arkansas Children's
Hospital Project), Series A, 6.20% due 3/01/2022 513
AAA Aaa 350 Pulaski County, Arkansas, Special School District, Revenue Refunding
Bonds, 5.25% due 2/01/2019 (d) 340
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) 531
Puerto Rico--6.1%
A Baa1 325 Puerto Rico Commonwealth, GO, UT, 6.50% due 7/01/2023 352
A Baa1 320 Puerto Rico Commonwealth, Highway and Transportation Authority, Highway
Revenue Bonds, Series T, 6.625% due 7/01/2018 345
Total Investments (Cost--$10,429)--97.6% 11,186
Other Assets Less Liabilities--2.4% 279
--------
Net Assets--100.0% $ 11,465
========
<FN>
(a)Prerefunded.
(b)GNMA Collateralized.
(c)MBIA Insured.
(d)FSA Insured.
(e)AMBAC Insured.
*Not Rated.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of January 31, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$10,429,078) (Note 1a) $ 11,185,664
Cash 30,874
Receivables:
Interest $ 174,235
Investment adviser (Note 2) 63,454
Beneficial interest sold 32,995 270,684
------------
Deferred organization expenses (Note 1e) 51,516
Prepaid registration fees and other assets (Note 1e) 135,750
------------
Total assets 11,674,488
------------
Liabilities: Payables:
Beneficial interest redeemed 34,757
Securities purchased 24,945
Dividends to shareholders (Note 1f) 13,846
Distributor (Note 2) 3,574 77,122
------------
Accrued expenses and other liabilities 131,886
------------
Total liabilities 209,008
------------
Net Assets: Net assets $ 11,465,480
============
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited
Consist of: number of shares authorized $ 20,462
Class B Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized 73,367
Class C Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized 5,894
Class D Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized 8,214
Paid-in capital in excess of par 10,683,597
Accumulated realized capital losses on investments--net (Note 5) (82,640)
Unrealized appreciation on investments--net 756,586
------------
Net assets $ 11,465,480
============
<PAGE>
Net Asset Value: Class A--Based on net assets of $2,173,485 and 204,617 shares
of beneficial interest outstanding $ 10.62
============
Class B--Based on net assets of $7,792,982 and 733,666 shares
of beneficial interest outstanding $ 10.62
============
Class C--Based on net assets of $626,394 and 58,945 shares
of beneficial interest outstanding $ 10.63
============
Class D--Based on net assets of $872,619 and 82,142 shares
of beneficial interest outstanding $ 10.62
============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Six Months Ended
January 31, 1996
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 347,122
(Note 1d):
Expenses: Printing and shareholder reports $ 70,839
Investment advisory fees (Note 2) 33,390
Professional fees 24,738
Accounting services (Note 2) 24,188
Account maintenance and distribution fees--Class B (Note 2) 20,997
Registration fees (Note 1e) 15,818
Transfer agent fees--Class B (Note 2) 2,950
Account maintenance and distribution fees--Class C (Note 2) 1,977
Pricing fees 1,591
Custodian fees 654
Transfer agent fees--Class A (Note 2) 646
Account maintenance fees--Class D (Note 2) 414
Trustees' fees and expenses 312
Amortization of organization expenses (Note 1e) 283
Transfer agent fees--Class D (Note 2) 238
Transfer agent fees--Class C (Note 2) 210
Other 6,199
-----------
Total expenses before reimbursement 205,444
Reimbursement of expenses (Note 2) (156,293)
-----------
Total expenses after reimbursement 49,151
-----------
Investment income--net 297,971
-----------
<PAGE>
Realized & Realized gain on investments--net 80,607
Unrealized Change in unrealized appreciation on investments--net 306,862
Gain on -----------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 685,440
(Notes 1b, 1d & 3): ===========
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL INFORMATION (continued)
<CAPTION>
Statements of Changes in Net Assets
For the For the Period
Six Months September 30,
Ended 1994++ to
January 31, July 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 297,971 $ 435,928
Realized gain (loss) on investments--net 80,607 (163,247)
Change in unrealized appreciation on investments--net 306,862 449,724
------------ ------------
Net increase in net assets resulting from operations 685,440 722,405
------------ ------------
Dividends to Investment income--net:
Shareholders Class A (59,827) (103,823)
(Note 1f): Class B (201,151) (309,723)
Class C (15,468) (6,757)
Class D (21,525) (15,625)
------------ ------------
Net decrease in net assets resulting from dividends to shareholders (297,971) (435,928)
------------ ------------
Beneficial Interest Net increase (decrease) in net assets derived from
Transactions beneficial interest transactions (599,076) 11,290,610
(Note 4): ------------ ------------
Net Assets: Total increase (decrease) in net assets (211,607) 11,577,087
Beginning of period 11,677,087 100,000
------------ ------------
End of period $ 11,465,480 $ 11,677,087
============ ============
<FN>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
Class A Class B
For the For the For the For the
Six Period Six Period
The following per share data and ratios have been derived Months Sept. 30, Months Sept. 30,
from information provided in the financial statements. Ended 1994++ to Ended 1994++ to
Jan. 31, July 31, Jan. 31, July 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1996 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.29 $ 10.00 $ 10.29 $ 10.00
Operating -------- -------- -------- --------
Performance: Investment income--net .28 .50 .25 .46
Realized and unrealized gain on investments--net .33 .29 .33 .29
-------- -------- -------- --------
Total from investment operations .61 .79 .58 .75
-------- -------- -------- --------
Less dividends from investment income--net (.28) (.50) (.25) (.46)
-------- -------- -------- --------
Net asset value, end of period $ 10.62 $ 10.29 $ 10.62 $ 10.29
======== ======== ======== ========
Total Investment Based on net asset value per share 5.96%+++ 8.13%+++ 5.69%+++ 7.68%+++
Return:** ======== ======== ======== ========
Ratios to Expenses, net of reimbursement .41%* .11%* .93%* .63%*
Average ======== ======== ======== ========
Net Assets: Expenses 2.98%* 2.32%* 3.49%* 2.83%*
======== ======== ======== ========
Investment income--net 5.29%* 5.94%* 4.78%* 5.41%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 2,173 $ 2,251 $ 7,793 $ 8,145
Data: ======== ======== ======== ========
Portfolio turnover 13.34% 28.64% 13.34% 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>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class C Class D
For the For the For the For the
Six Period Six Period
The following per share data and ratios have been derived Months Sept. 30, Months Sept. 30,
from information provided in the financial statements. Ended 1994++ to Ended 1994++ to
Jan. 31, July 31, Jan. 31, July 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1996 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.30 $ 9.92 $ 10.29 $ 9.92
Operating -------- -------- -------- --------
Performance: Investment income--net .25 .41 .27 .46
Realized and unrealized gain on investments--net .33 .38 .33 .37
-------- -------- -------- --------
Total from investment operations .58 .79 .60 .83
-------- -------- -------- --------
Less dividends from investment income--net (.25) (.41) (.27) (.46)
-------- -------- -------- --------
Net asset value, end of period $ 10.63 $ 10.30 $ 10.62 $ 10.29
======== ======== ======== ========
Total Investment Based on net asset value per share 5.64%+++ 8.13%+++ 5.91%+++ 8.54%+++
Return:** ======== ======== ======== ========
Ratios to Expenses, net of reimbursement 1.02%* .85%* .52%* .29%*
Average ======== ======== ======== ========
Net Assets: Expenses 3.59%* 2.90%* 3.09%* 2.37%*
======== ======== ======== ========
Investment income--net 4.68%* 5.00%* 5.19%* 5.64%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 626 $ 558 $ 873 $ 723
Data: ======== ======== ======== ========
Portfolio turnover 13.34% 28.64% 13.34% 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
non-diversified, open-end management investment company. These
unaudited financial statements reflect all adjustments which are, in
the opinion of management, necessary to a fair statement of the
results for the interim period presented. All such adjustments are
of a normal recurring nature. The Fund offers four classes of shares
under the Merrill Lynch Select Pricing SM System. Shares of Class A
and Class D are sold with a front-end sales charge. Shares of Class
B and Class C may be subject to a contingent deferred sales charge.
All classes of shares have identical voting, dividend, liquidation
and other rights and the same terms and conditions, except that
Class B, Class C and Class D Shares bear certain expenses related to
the account maintenance of such shares, and Class B and Class C
Shares also bear certain expenses related to the distribution of
such shares. Each class has exclusive voting rights with respect to
matters relating to its account maintenance and distribution
expenditures. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments--Municipal bonds and other portfolio
securities 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 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, 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.
<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.
(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.
NOTES TO FINANCIAL STATEMENTS (concluded)
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.
<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 six months ended January 31, 1996, FAM
earned fees of $33,390, all of which was voluntarily waived. FAM
also reimbursed the Fund additional expenses of $122,903.
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% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
also provides account maintenance and distribution services to the
Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
For the six months ended January 31, 1996, MLFD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the
Fund's Class A and Class D Shares as follows:
MLFD MLPF&S
Class A $341 $4,396
Class D $191 $2,667
<PAGE>
For the six months ended January 31, 1996, MLPF&S received
contingent deferred sales charges of $39,662 and $500 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, MLFD, MLFDS, MLPF&S, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended January 31, 1996 were $1,904,560 and
$1,487,141, respectively.
Net realized and unrealized gains as of January 31, 1996 were as
follows:
Realized Unrealized
Gains Gains
Long-term investments $ 80,607 $ 756,586
------------ ------------
Total $ 80,607 $ 756,586
============ ============
As of January 31, 1996, net unrealized appreciation for Federal
income tax purposes aggregated $756,586, all of which related to
appreciated securities. The aggregate cost of investments at January
31, 1996 for Federal income tax purposes was $10,429,078.
4. Beneficial Interest Transactions:
Net increase (decrease) in net assets derived from beneficial
interest transactions was $(599,076) and $11,290,610 for the six
months ended January 31, 1996 and the period ended July 31, 1995.
Transactions in shares of beneficial interest for each class were as
follows:
<PAGE>
Class A Shares for the Six Dollar
Months Ended January 31, 1996 Shares Amount
Shares sold 13,197 $ 138,477
Shares issued to share-
holders in reinvestment
of dividends 1,059 11,092
------------ ------------
Total issued 14,256 149,569
Shares redeemed (28,349) (298,086)
------------ ------------
Net decrease (14,093) $ (148,517)
============ ============
Class A Shares for the Period Dollar
Sept. 30, 1994++ 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 $50,000.
Class B Shares for the Six Dollar
Months Ended January 31, 1996 Shares Amount
Shares sold 89,493$ 934,462
Shares issued to share-
holders in reinvestment
of dividends 4,895 51,290
------------ ------------
Total issued 94,388 985,752
Shares redeemed (152,181) (1,607,312)
------------ ------------
Net decrease (57,793) $ (621,560)
============ ============
<PAGE>
Class B Shares for the Period Dollar
Sept. 30, 1994++ 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.
Class C Shares for the Six Months Dollar
Ended January 31, 1996 Shares Amount
Shares sold 9,755 $ 99,995
Shares issued to share-
holders in reinvestment
of dividends 1,222 12,810
------------ ------------
Total issued 10,977 112,805
Shares redeemed (6,212) (65,695)
------------ ------------
Net increase 4,765 $ 47,110
============ ============
Class C Shares for the Period Dollar
Oct. 21, 1994++ 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
============ ============
<PAGE>
[FN]
++Commencement of Operations.
Class D Shares for the Six Months Dollar
Ended January 31, 1996 Shares Amount
Shares sold 13,882 $ 144,847
Shares issued to share-
holders in reinvestment
of dividends 1,492 15,641
------------ ------------
Total issued 15,374 160,488
Shares redeemed (3,471) (36,597)
------------ ------------
Net increase 11,903 $ 123,891
============ ============
Class D Shares for the Period Dollar
Oct. 21, 1994++ 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 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.
