MERRILL LYNCH
ARKANSAS
MUNICIPAL
BOND FUND
[FUND LOGO]
STRATEGIC
Performance
Semi-Annual Report
January 31, 1997
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
Kenneth A. Jacob, Vice President
Robert D. Sneeden, Vice President
Gerald M. Richard, Treasurer
Jerry Weiss, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless accompanied or
preceded by the Fund's current prospectus. Past performance results
shown in this report should not be considered a representation of future
performance. Investment return and principal value of shares will
fluctuate so that shares, when redeemed, may be worth more or less than
their original cost. Statements and other information
herein are as dated and are subject to change.
Merrill Lynch Arkansas
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, NJ
08543-9011 #20058 -- 1/97
Merrill Lynch Arkansas Municipal Bond Fund January 31, 1997
TO OUR SHAREHOLDERS
The Municipal Market Environment
Long-term fixed-income bond yields generally declined over the six
months ended January 31, 1997. Initially, US Treasury bond yields
declined over 45 basis points (0.45%) to 6.45% by late November as low
employment growth and continued low inflation combined to support lower
bond yields. Concurrently, long-term municipal revenue bond yields, as
measured by the Bond Buyer Revenue Bond Index, declined over 20 basis
points to approximately 5.80%. However, signs of increased economic
activity and renewed inflation fears pushed bond yields up for the
remainder of the period. By the end of January 1997, US Treasury bond
yields rose 35 basis points to end the period at approximately 6.80%.
Similarly, long-term municipal revenue bond yields rose approximately 20
basis points from their lows in late November to approximately 6.00%.
During the six months ended January 31, 1997, US Treasury bond yields
declined approximately 10 basis points, while tax-exempt bond yields
were essentially unchanged.
Recently, tax-exempt bond yields underperformed their taxable
counterparts despite a continued strong supply position. During the six-
month period ended January 31, 1997, over $88 billion in long-term tax-
exempt bonds was underwritten, essentially unchanged from issuance a
year ago. Approximately $50 billion in new municipal bonds was issued
during the three-month period ended January 31, 1997, representing a
decline of over 5% compared to the same period in 1996. This declining
trend in bond issuance was even more apparent recently. Slightly more
than $10 billion in long-term bonds was issued in January 1997, a
decrease of over 15% compared to January 1996 issuance.
The municipal bond market's recent underperformance relative to Treasury
issues was the result of a number of other factors. The historic
strength of the US equity market has attracted significant investor
interest. Additionally, as tax-exempt bond yields declined again below
6%, some investors temporarily lost interest in the municipal bond
market. If interest rates continue to decline, as they did at the end of
1994 and throughout 1995, investors, in general, will quickly adjust to
the new levels. The tax advantages generated by municipal bonds quickly
outweigh low nominal yields, and investor demand increases.
The Presidential and Congressional elections this past November
resurrected some investor concerns regarding continued Federal deficit
reduction and potential legislative restrictions upon the municipal bond
market. This situation was similar to that at the beginning of 1996 when
tax-exempt bond yields were negatively impacted by fears that
legislation reducing the tax advantage of municipal bonds would be
introduced to aid further deficit reductions.
However, the US Treasury bond market's recent relatively strong
performance resulted in municipal bonds becoming a particularly
attractive investment alternative. At current levels, long-term tax-
exempt revenue bonds yield over 88% of comparable US Treasury bond
yields. Current levels make tax-advantaged products more attractive than
they were at mid-year when yield ratios declined to approximately 85%.
For example, to an investor in the 36% Federal income tax bracket, a
current tax-exempt bond yield of 6% represents a taxable equivalent
yield of approximately 9.37%.
Looking forward, the supply of new bond issuance for 1997 is expected to
be very similar to that of 1996, with most annual estimates falling in
the $170 billion -- $175 billion range. Investor demand is also expected
to regain its former strength, with 1997 total municipal redemptions
(refundings, maturities and coupon payments) in the $175 billion -- $185
billion range. This overall balance suggests that the positive technical
backdrop the municipal bond market enjoyed in 1996 could continue in
1997. However, it is likely that seasonal factors may temporarily
distort this overall balanced technical scenario. During periods of
reduced bond issuance, the ease and ability to purchase tax-advantaged
products at their current attractive levels may be greatly restricted.
Portfolio Strategy
During the six-month period ended January 31, 1997, we primarily
maintained the defensive posture of the Fund which we adopted in mid-
1996. Our principal strategy was to favor higher-couponed issues over
more interest rate-sensitive securities that have greater potential for
capital appreciation. We believed that tax-exempt interest rates would
fluctuate in a broad range and larger-couponed securities would offer
both greater principal preservation and generous tax-exempt income. In
addition, we maintained minimal cash reserves in recent months to
further augment shareholder income.
The municipal market in Arkansas continued to see very little activity
during the six months ended January 31, 1997. We believe this was
because of the small amount of new issuance (just over $400 million in
municipal bonds) in the Arkansas tax-exempt market. This represents a
decline of 15% compared to the same six-month period in 1996. During the
three months ended January 31, 1997, just under $200 million in
municipal bonds was issued in Arkansas, which resulted in a 93% decline
from the comparable period a year earlier. This dramatic decline in new
bond supply was perhaps the major determining factor in our decision to
maintain a fully invested position.
We believe that economic growth should slow by mid-1997, perhaps aided
by an increase in interest rates by the Federal Reserve Board. Slower
growth, combined with continued low inflation, may result in materially
lower interest rates. Additionally, the prospect for further Federal
deficit reduction may provide a positive backdrop for more significant
declines in long-term bond yields. Signs that such a scenario is
developing would trigger us to move to a more aggressive strategy for
the Fund, utilizing more interest rate-sensitive issues in order to seek
to enhance the Fund's principal appreciation. At the same time, however,
we will still seek to generate an attractive level of tax-exempt income.
In Conclusion
We appreciate your ongoing interest in Merrill Lynch Arkansas Municipal
Bond Fund, and we look forward to serving your investment needs in the
months and years ahead.
Sincerely,
/S/ARTHUR ZEIKEL
Arthur Zeikel
President
/S/VINCENT R. GIORDANO
Vincent R. Giordano
Senior Vice President
/S/ROBERT D. SNEEDEN
Robert D. Sneeden
Portfolio Manager
February 28, 1997
We are pleased to announce that Robert D. Sneeden is responsible for
the day-to-day management of Merrill Lynch Arkansas Municipal Bond Fund.
Mr. Sneeden has been employed by Merrill Lynch Asset Management, L.P. (an
affiliate of the Fund's investment adviser) since 1994 as Portfolio Manager.
Prior thereto, he was Vice President with Lehman Brothers from 1990 to 1994.
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. 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
1/31/97 10/31/96 1/31/96 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $10.43 $10.43 $10.62 -1.79% 0.00%
Class B Shares* 10.42 10.43 10.62 -1.88 -0.10
Class C Shares* 10.43 10.44 10.63 -1.88 -0.10
Class D Shares* 10.43 10.43 10.62 -1.79 0.00
Class A Shares -- Total Return* +3.48(1) +1.33(2)
Class B Shares -- Total Return* +2.86(3) +1.10(4)
Class C Shares -- Total Return* +2.76(5) +1.07(6)
Class D Shares -- Total Return* +3.38(7) +1.30(8)
Class A Shares -- Standardized 30-day Yield 4.61%
Class B Shares -- Standardized 30-day Yield 4.29%
Class C Shares -- Standardized 30-day Yield 4.20%
Class D Shares -- Standardized 30-day Yield 4.51%
* 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 $0.549 per share ordinary income dividends.
(2) Percent change includes reinvestment of $0.144 per share ordinary income dividends.
(3) Percent change includes reinvestment of $0.495 per share ordinary income dividends.
(4) Percent change includes reinvestment of $0.129 per share ordinary income dividends.
(5) Percent change includes reinvestment of $0.485 per share ordinary income dividends.
(6) Percent change includes reinvestment of $0.127 per share ordinary income dividends.
(7) Percent change includes reinvestment of $0.538 per share ordinary income dividends.
(8) Percent change includes reinvestment of $0.141 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>
9/30/94 -- 12/31/94 $10.00 $9.71 -- $0.157 - 1.31%
1995 9.71 10.64 -- 0.574 +15.85
1996 10.64 10.46 -- 0.543 + 3.57
1/1/97 -- 1/31/97 10.46 10.43 -- 0.038 + 0.16
Total $1.312
Cumulative total return as of 1/31/97: +18.61%**
* 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>
<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>
9/30/94 -- 12/31/94 $10.00 $9.71 -- $0.144 - 1.44%
1995 9.71 10.64 -- 0.522 +15.26
1996 10.64 10.46 -- 0.490 + 3.04
1/1/97 -- 1/31/97 10.46 10.42 -- 0.034 + 0.02
Total $1.190
Cumulative total return as of 1/31/97: +17.08%**
* Figures may include short-term capital gains distributions.
** Figures assume reinvestment of all dividends and capital gains distributions at
net asset value on the payable date, and do not reflect deduction of any sales
charge; results would be lower if sales charge was deducted.
</TABLE>
<TABLE>
<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 $9.92 $9.72 -- $0.102 - 0.97%
1995 9.72 10.65 -- 0.512 +15.14
1996 10.65 10.47 -- 0.480 + 2.95
1/1/97 -- 1/31/97 10.47 10.43 -- 0.034 + 0.01
Total $1.128
Cumulative total return as of 1/31/97: +17.40%**
* Figures may include short-term capital gains distributions.
** Figures assume reinvestment of all dividends and capital gains distributions at
net asset value on the payable date, and do not reflect deduction of any sales
charge; results would be lower if sales charge was deducted.
</TABLE>
<TABLE>
<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 $9.92 $9.71 -- $0.121 - 0.88%
1995 9.71 10.64 -- 0.564 +15.73
1996 10.64 10.46 -- 0.533 + 3.47
1/1/97 -- 1/31/97 10.46 10.43 -- 0.037 + 0.15
Total $1.255
Cumulative total return as of 1/31/97: +18.87%**
* Figures may include short-term capital gains distributions.
** Figures assume reinvestment of all dividends and capital gains distributions at
net asset value on the payable date, and do not include sales charge; results
would be lower if sales charge was included.
</TABLE>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/96 +3.57% -0.57%
Inception (9/30/94)
through 12/31/96 +7.79 +5.86
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/96 +3.04% -0.89%
Inception (9/30/94)
through 12/31/96 +7.24 +6.43
* Maximum contingent deferred sales charge is 4% and is reduced
to 0% after 4 years.
** Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 12/31/96 +2.95% +1.97%
Inception (10/21/94)
through 12/31/96 +7.58 +7.58
* Maximum contingent deferred sales charge is 1% and is reduced
to 0% after 1 year.
** Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 12/31/96 +3.47% -0.67%
Inception (10/21/94)
through 12/31/96 +8.12 +6.13
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
<TABLE>
<CAPTION>
Merrill Lynch Arkansas Municipal Bond Fund January 31, 1997
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <C> <C> <C> <C>
Arkansas -- 88.1%
Arkansas State Development Finance Authority, S/F Mortgage Revenue Bonds (b):
AAA NR* $755 AMT, Series A, 7.30% due 3/01/2013 $797
AAA NR* 500 (Mortgage Backed Securities Program), Series H, 6.15% due 7/01/2016 (f) 510
AA NR* 250 Arkansas State Development Finance Authority, Wastewater System Revenue Bonds
(Revolving Loan Fund), Series A, 5.85% due 12/01/2019 257
AA Aa 350 Arkansas State Refunding Bonds (Waste Disposal and Pollution), Series B,
6.25% due 7/01/2020 363
NR* A 350 Arkansas State Student Loan Authority Revenue Bonds, AMT, Sub-Series B,
7.25% due 6/01/2009 380
BBB Baa2 275 Baxter County, Arkansas, IDR, Refunding (Aeroquip-Trinova Corp. Project),
5.80% due 10/01/2013 274
A- A3 1,000 Camden, Arkansas, Environmental Improvement Revenue Bonds (International Paper Co.
Project), AMT, Series A, 7.62% due 11/01/2018 1,170
A+ NR* 500 Conway, Arkansas, Public Facilities Board, Capital Improvement Revenue Bonds
(Hendrix College Project), 6% due 10/01/2026 506
AAA Aaa 350 Fort Smith, Arkansas, Water, Sewer and Construction Revenue Refunding Bonds,
6% due 10/01/2012 (c) 366
AAA Aaa 250 Independence County, Arkansas, PCR, Refunding (Arkansas Power and Light Co. Project),
6.25% due 1/01/2021 (d) 262
BBB Baa2 200 Jefferson County, Arkansas, PCR, Refunding (Arkansas Power and Light Co. Project),
6.30% due 6/01/2018 205
AAA Aaa 500 Jonesboro, Arkansas, City Water and Light Plant, Public Utility System Revenue Bonds,
5.25% due 11/15/2004 (c) 517
AAA Aaa 375 Little Rock, Arkansas, Municipal Airport Revenue Refunding Bonds, 6% due 11/01/2014 (c) 385
AA+ Aa 500 Little Rock, Arkansas, Refunding (Capital Improvement), 6.25% due 2/01/2008 515
AAA Aaa 400 North Little Rock, Arkansas, Electric Revenue Refunding Bonds, Series A, 6.50%
due 7/01/2015 (c) 450
AAA Aaa 500 North Little Rock, Arkansas, Health Facilities Board, Health Care Revenue Bonds
(Baptist Health) Series A, 5.50% due 12/01/2021 (c) 493
BBB Baa2 300 Pope County, Arkansas, PCR, Refunding (Arkansas Power and Light Co. Project), 6.30%
due 12/01/2016 307
A- NR* 500 Pulaski County, Arkansas, Hospital Revenue Bonds (Arkansas Children's Hospital Project),
Series A, 6.20% due 3/01/2022 508
AAA Aaa 350 Pulaski County, Arkansas, Special School District Refunding Bonds, 5.25% due 2/01/2019 (d) 336
AA A1 500 Rogers, Arkansas, Sales and Use Tax Revenue Bonds, 5.35% due 11/01/2011 503
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) 513
Puerto Rico -- 10.8%
A Baa1 325 Puerto Rico Commonwealth, GO, UT, 6.50% due 7/01/2023 347
Puerto Rico Commonwealth, Highway and Transportation Authority, Highway Revenue Bonds:
AAA Aaa 320 Series T, 6.62% due 7/01/2002 (a) 358
A Baa1 500 Series Y, 5.50% due 7/01/2036 477
Total Investments (Cost -- $10,261) -- 98.9% 10,799
Other Assets Less Liabilities -- 1.1% 125
---------
Net Assets -- 100.0% $10,924
=========
(a) Prerefunded.
(b) GNMA Collateralized.
(c) MBIA Insured.
(d) FSA Insured.
(e) AMBAC Insured.
(f) FNMA Collateralized.
* Not Rated.
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 General Obligation Bonds
IDR Industrial Development Revenue Bonds
PCR Pollution Control Revenue Bonds
S/F Single-Family
UT Unlimited Tax
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of January 31, 1997
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $10,260,972) (Note 1a) $10,798,810
Cash 34,195
Receivables:
Interest $160,816
Investment adviser (Note 2) 21,711 182,527
------------
Deferred organization expenses (Note 1e) 39,120
Prepaid registration fees and other assets (Note 1e) 11,082
------------
Total assets 11,065,734
------------
Liabilities: Payables:
Beneficial interest redeemed 31,409
Dividends to shareholders (Note 1f) 8,384
Distributor (Note 2) 3,844 43,637
------------
Accrued expenses and other liabilities 98,579
------------
Total liabilities 142,216
------------
Net Assets: Net assets $10,923,518
============
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited number of
Consist of: shares authorized $14,530
Class B Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 73,191
Class C Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 7,629
Class D Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 9,434
Paid-in capital in excess of par 10,361,317
Accumulated realized capital losses on investments -- net (Note 5) (80,421)
Unrealized appreciation on investments -- net 537,838
------------
Net assets $10,923,518
============
Net Asset Value: Class A -- Based on net assets of $1,514,738 and 145,297 shares
of beneficial interest outstanding $10.43
============
Class B -- Based on net assets of $7,629,687 and 731,905 shares
of beneficial interest outstanding $10.42
============
Class C -- Based on net assets of $795,586 and 76,289 shares
of beneficial interest outstanding $10.43
============
Class D -- Based on net assets of $983,507 and 94,336 shares
of beneficial interest outstanding $10.43
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Six Months Ended
January 31, 1997
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned $327,359
(Note 1d):
Expenses: Investment advisory fees (Note 2) $30,843
Professional fees 28,990
Account maintenance and distribution fees -- Class B (Note 2) 19,360
Accounting services (Note 2) 18,910
Printing and shareholder reports 17,403
Amortization of organization expenses (Note 1e) 6,830
Registration fees (Note 1e) 4,961
Transfer agent fees -- Class B (Note 2) 3,065
Account maintenance and distribution fees -- Class C (Note 2) 2,317
Pricing fees 1,901
Custodian fees 705
Transfer agent fees -- Class A (Note 2) 545
Account maintenance fees -- Class D (Note 2) 539
Transfer agent fees -- Class D (Note 2) 362
Trustees' fees and expenses 304
Transfer agent fees -- Class C (Note 2) 280
Other 8,438
------------
Total expenses before reimbursement 145,753
Reimbursement of expenses (Note 2) (83,339)
------------
Total expenses after reimbursement 62,414
------------
Investment income -- net 264,945
------------
Realized & Realized gain on investments -- net 54,140
Unrealized Gain on Change in unrealized appreciation on investments -- net 41,210
Investments -- Net ------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $360,295
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
For the
Six Months For the
Ended Year Ended
January 31, July 31,
Increase (Decrease) in Net Assets: 1997 1996
<S> <C> <C> <C>
Operations: Investment income -- net $264,945 $566,413
Realized gain on investments -- net 54,140 28,686
Change in unrealized appreciation on investments -- net 41,210 46,904
------------ ------------
Net increase in net assets resulting from operations 360,295 642,003
------------ ------------
Dividends to Investment income -- net:
Shareholders Class A (41,568) (107,159)
(Note 1f): Class B (178,789) (381,400)
Class C (17,465) (32,661)
Class D (27,123) (45,193)
------------ ------------
Net decrease in net assets resulting from dividends to shareholders (264,945) (566,413)
------------ ------------
Beneficial Interest Net decrease in net assets derived from beneficial
Transactions interest transactions (216,379) (708,130)
(Note 4): ------------ ------------
Net Assets: Total decrease in net assets (121,029) (632,540)
Beginning of period 11,044,547 11,677,087
------------ ------------
End of period $10,923,518 $11,044,547
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Class A Class B
For the For the For the For the
Six For the Period Six For the Period
The following per share data and ratios have been derived Months Year Sept. 30, Months Year Sept. 30,
from information provided in the financial statements. Ended Ended 1994+ to Ended Ended 1994+ to
Jan. 31, July 31, July 31, Jan. 31, July 31, July 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.34 $10.29 $10.00 $10.34 $10.29 $10.00
Operating ------ ------ ------ ------ ------ ------
Performance: Investment income -- net .27 .55 .50 .24 .50 .46
Realized and unrealized gain on
investments -- net .09 .05 .29 .08 .05 .29
------ ------ ------ ------ ------ ------
Total from investment operations .36 .60 .79 .32 .55 .75
------ ------ ------ ------ ------ ------
Less dividends from investment income -- net (.27) (.55) (.50) (.24) (.50) (.46)
------ ------ ------ ------ ------ ------
Net asset value, end of period $10.43 $10.34 $10.29 $10.42 $10.34 $10.29
====== ====== ====== ====== ====== ======
Total Investment Based on net asset value per share 3.54%++ 5.94% 8.13%++ 3.17%++ 5.39% 7.68%++
Return:** ====== ====== ====== ====== ====== ======
Ratios to Expenses, net of reimbursement .71%* .49% .11%* 1.22%* 1.00% .63%*
Average ====== ====== ====== ====== ====== ======
Net Assets: Expenses 2.20%* 3.17% 2.32%* 2.71%* 3.69% 2.83%*
====== ====== ====== ====== ====== ======
Investment income -- net 5.13%* 5.28% 5.94%* 4.62%* 4.77% 5.41%*
====== ====== ====== ====== ====== ======
Supplemental Net assets, end of period (in thousands) $1,515 $1,710 $2,251 $7,630 $7,573 $8,145
Data: ====== ====== ====== ====== ====== ======
Portfolio turnover 20.36% 28.82% 28.64% 20.36% 28.82% 28.64%
====== ====== ====== ====== ====== ======
<CAPTION>
Financial Highlights (concluded)
Class C Class D
For the For the For the For the
Six For the Period Six For the Period
The following per share data and ratios have been derived Months Year Oct. 21, Months Year Oct. 21,
from information provided in the financial statements. Ended Ended 1994+ to Ended Ended 1994+ to
Jan. 31, July 31, July 31, Jan. 31, July 31, July 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.34 $10.30 $9.92 $10.34 $10.29 $9.92
Operating ------ ------ ------ ------ ------ ------
Performance: Investment income -- net .24 .49 .41 .27 .54 .46
Realized and unrealized gain on
investments -- net .09 .04 .38 .09 .05 .37
------ ------ ------ ------ ------ ------
Total from investment operations .33 .53 .79 .36 .59 .83
------ ------ ------ ------ ------ ------
Less dividends from investment income -- net (.24) (.49) (.41) (.27) (.54) (.46)
------ ------ ------ ------ ------ ------
Net asset value, end of period $10.43 $10.34 $10.30 $10.43 $10.34 $10.29
====== ====== ====== ====== ====== ======
Total Investment Based on net asset value per share 3.22%++ 5.19% 8.13%++ 3.48%++ 5.84% 8.54%++
Return:** ====== ====== ====== ====== ====== ======
Ratios to Expenses, net of reimbursement 1.31%* 1.11% .85%* .81%* .60% .29%*
Average ====== ====== ====== ====== ====== ======
Net Assets: Expenses 2.79%* 3.81% 2.90%* 2.30%* 3.31% 2.37%*
====== ====== ====== ====== ====== ======
Investment income -- net 4.52%* 4.68% 5.00%* 5.03%* 5.18% 5.64%*
====== ====== ====== ====== ====== ======
Supplemental Net assets, end of period (in thousands) $796 $681 $558 $983 $1,081 $723
Data: ====== ====== ====== ====== ====== ======
Portfolio turnover 20.36% 28.82% 28.64% 20.36% 28.82% 28.64%
====== ====== ====== ====== ====== ======
* 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 Arkansas Municipal Bond Fund January 31, 1997
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 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 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, 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 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.
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.
For the six months ended January 31, 1997, FAM earned fees of $30,843,
all of which was voluntarily waived. FAM also reimbursed the Fund
additional expenses of $52,496.
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, 1997, MLFD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the Fund's
Class A and Class D Shares as follows:
MLFD MLPF&S
Class A $61 $819
Class D $29 $476
For the six months ended January 31, 1997, MLPF&S received contingent
deferred sales charges of $12,137 relating to transactions in Class B
Shares.
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, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for
the six months ended January 31, 1997 were $2,492,585 and $2,141,681,
respectively.
Net realized and unrealized gains as of January 31, 1997 were as
follows:
Realized Unrealized
Gains Gains
Long-term investments $ 54,140 $ 537,838
---------- ----------
Total $ 54,140 $ 537,838
========== ==========
As of January 31, 1997, net unrealized appreciation for Federal income
tax purposes aggregated $537,838, of which $542,702 related to
appreciated securities and $4,864 related to depreciated securities. The
aggregate cost of investments at January 31, 1997 for Federal income tax
purposes was $10,260,972.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest transactions
was $216,379 and $708,130 for the six months ended January 31, 1997 and
for the year ended July 31, 1996, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Six Months Dollar
Ended January 31, 1997 Shares Amount
Shares sold 2,191 $22,723
Shares issued to shareholders
in reinvestment of dividends 691 7,184
---------- ----------
Total issued 2,882 29,907
Shares redeemed (23,005) (239,198)
---------- ----------
Net decrease (20,123) $(209,291)
========== ==========
Class A Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 23,482 $245,432
Shares issued to shareholders
in reinvestment of dividends 2,036 21,214
---------- ----------
Total issued 25,518 266,646
Shares redeemed (78,808) (826,776)
---------- ----------
Net decrease (53,290) $(560,130)
========== ==========
Class B Shares for the Six Months Dollar
Ended January 31, 1997 Shares Amount
Shares sold 48,916 $509,181
Shares issued to shareholders
in reinvestment of dividends 5,418 56,356
---------- ----------
Total issued 54,334 565,537
Shares redeemed (55,042) (573,478)
---------- ----------
Net decrease (708) $(7,941)
========== ==========
Class B Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 149,969 $1,564,033
Shares issued to shareholders
in reinvestment of dividends 10,248 106,689
---------- ----------
Total issued 160,217 1,670,722
Shares redeemed (219,063) (2,297,703)
---------- ----------
Net decrease (58,846) $(626,981)
========== ==========
Class C Shares for the Six Months Dollar
Ended January 31, 1997 Shares Amount
Shares sold 9,819 $101,640
Shares issued to shareholders
in reinvestment of dividends 1,541 16,039
---------- ----------
Total issued 11,360 117,679
Shares redeemed (953) (9,951)
---------- ----------
Net increase 10,407 $107,728
========== ==========
Class C Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 30,852 $320,788
Shares issued to shareholders
in reinvestment of dividends 2,708 28,200
---------- ----------
Total issued 33,560 348,988
Shares redeemed (21,858) (225,645)
---------- ----------
Net increase 11,702 $123,343
========== ==========
Class D Shares for the Six Months Dollar
Ended January 31, 1997 Shares Amount
Shares sold 1,195 $12,440
Shares issued to shareholders
in reinvestment of dividends 1,597 16,616
---------- ----------
Total issued 2,792 29,056
Shares redeemed (13,031) (135,931)
---------- ----------
Net decrease (10,239) $(106,875)
========== ==========
Class D Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 41,074 $427,275
Shares issued to shareholders
in reinvestment of dividends 3,011 31,367
---------- ----------
Total issued 44,085 458,642
Shares redeemed (9,749) (103,004)
---------- ----------
Net increase 34,336 $355,638
========== ==========
5. Capital Loss Carryforward:
At July 31, 1996, the Fund had a capital loss carryforward of approximately
$40,000, of which $6,000 expires in 2003 and $34,000 expires in 2004. This
amount will be available to offset like amounts of any future taxable gains.
