MERRILL LYNCH
ARKANSAS
MUNICIPAL
BOND FUND
[FUND LOGO]
STRATEGIC
Performance
Semi-Annual Report
January 31, 1998
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless accompanied
or preceded by the Fund's current prospectus. Past performance results
shown in this report should not be considered a representation of
future performance. Investment return and principal value of shares
will fluctuate so that shares, when redeemed, may be worth more or
less than their original cost. Statements and other information
herein are as dated and are subject to change.
Merrill Lynch Arkansas
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, NJ
08543-9011 #20058 -- 1/98
[RECYCLE LOGO]
Printed on post-consumer recycled paper
Merrill Lynch Arkansas Municipal Bond Fund January 31, 1998
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the six months ended January 31, 1998, long-term bond yields
declined to recent historic lows. Prior to late October, the ongoing
positive combination of moderate economic growth and low inflation had
allowed interest rates to gradually move lower. During the last three
months, however, the decline in interest rates was driven more by the
continued turmoil in Asian equity markets than by fundamental concerns.
A significant "flight to quality" has benefited the US Treasury bond
market, particularly longer-maturity US Treasury bonds, as foreign
investors have sought safe haven in the relative stability of US
financial markets. Over the six months ended January 31, 1998, US
Treasury bond yields declined approximately 50 basis points (0.50%)
to 5.81%.
Without the ability to benefit from the tax advantage inherent in
municipal bonds, foreign investors have not participated in the tax-
exempt market. Consequently, municipal bond yields have not declined
dramatically as have taxable US Treasury securities. Long-term
municipal revenue bond yields, as measured by the Bond Buyer Revenue
Index, declined only 15 basis points to end the six-month period ended
January 31, 1998 at 5.33%. Nevertheless, tax-exempt bond yields have
not reached these levels since the mid-1970s.
The increase in new municipal bond issuance over the past six months
has also prevented the tax-exempt bond market from more closely
mirroring the yield declines exhibited by its taxable counterpart.
During the last six months, over $120 billion in new long-term
municipal bonds were underwritten, an increase of over 30% compared to
the same six-month period one year ago. As interest rates have
continued to decline in recent months, new tax-exempt bond issuance
has remained strong. Over $60 million in new long-term municipal
securities were issued during the last three months, an increase of
over 20% compared to the same three-month period ended January 31,
1997. During the past month, over $16 billion in new long-term municipal
securities were underwritten, representing an increase of over 40%
compared to the January 1997 level.
In our opinion, the recent correction in world equity markets has
enhanced the near-term prospects for continued low, if not declining,
interest rates in the United States. It is likely that the recent
correction will result in slower US domestic growth in the coming
months. This decline should be generated in part by reduced US export
growth. Additionally, some decline in consumer spending can also be
expected because of reduced consumer confidence. Perhaps more
importantly, it is likely that, barring a dramatic and unexpected
resurgence in domestic growth, the Federal Reserve Board will be
unwilling to raise interest rates until the full impact of the equity
market's corrections can be established.
All of these factors suggest that over the near term, interest rates,
including tax-exempt bond yields, are unlikely to rise by any
appreciable amount. It is probable that municipal bond yields will
remain under some relative pressure because of continued strong new-
issue supply. However, the recent pace of municipal bond issuance is
likely to be unsustainable. Continued increases in bond issuance will
require lower and lower tax-exempt bond yields to generate the economic
savings necessary for additional municipal bond refinancings. Preliminary
estimates of 1998 total municipal bond issuance are presently in the
$195 billion -- $220 billion range. These estimates suggest that recent
supply pressures are likely to abate somewhat next year, or at least exert
only minimal technical pressure during 1998. Additionally, municipal bond
investors received approximately $23 billion in January coupon payments,
bond maturities and proceeds from early redemptions, which should serve to
intensify investor demand in the near future. With tax-exempt bond yields
at already attractive yield ratios relative to US Treasury bonds
(approximately 90% at the end of December 1997), any further pressure
on the municipal market may well represent an attractive investment
opportunity.
Portfolio Strategy
We adopted a slightly defensive investment strategy going into the
second half of 1997. We believed that economic growth would reappear
and that the Federal Reserve Board would have to raise interest rates
in order to keep inflation under control. However, in late October 1997,
the Asian equity market turmoil created an increased demand for securities
in the US Treasury bond market. In response to the Asian financial crisis and
the continued low domestic inflationary environment, we shifted Merrill Lynch
Arkansas Municipal Bond Fund toward a more aggressive strategy by early
November 1997.
During the six months ended January 31, 1998, new issuance was just
over $700 million in the Arkansas tax-exempt bond market. This
represented an increase of approximately 40% compared to the same
period a year ago. Additionally, the majority of new issuance in
Arkansas was dominated by current coupons and lesser call protection,
which would not enhance the Fund's overall structure.
Looking ahead, we expect to maintain the Fund's fully invested
position. We believe that interest rates will remain in a narrow
trading range. We plan to use periods of higher interest rates to
structure the portfolio more aggressively. However, an anticipated
lack of new issuance in Arkansas may curtail our ability to execute
this strategy.
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 to come.
Sincerely,
/S/ARTHUR ZEIKEL
Arthur Zeikel
President
/S/VINCENT R. GIORDANO
Vincent R. Giordano
Senior Vice President
/S/ROBERT D. SNEEDEN
Robert D. Sneeden
Vice President and Portfolio Manager
March 4, 1998
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill
Lynch Select PricingSM System, which offers four pricing alternatives:
[bullet] Class A Shares incur a maximum initial sales charge (front-
end load) of 4% and bear no ongoing distribution or account
maintenance fees. Class A Shares are available only to eligible
investors.
[bullet] Class B Shares are subject to a maximum contingent deferred
sales charge of 4% if redeemed during the first year, decreasing 1%
each year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.25% and an account
maintenance fee of 0.25%. These shares automatically convert to Class
D Shares after approximately 10 years. (There is no initial sales
charge for automatic share conversions.)
[bullet] Class C Shares are subject to a distribution fee of 0.35%
and an account maintenance fee of 0.25%. In addition, Class C Shares
are subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
[bullet] Class D Shares incur a maximum initial sales charge of
4% and an account maintenance fee of 0.10% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. Figures shown in the "Average Annual Total
Return" tables as well as the total returns and cumulative total
returns in the "Performance Summary" tables assume reinvestment of all
dividends and capital gains distributions at net asset value on the
payable date. Investment return and principal value of shares will
fluctuate so that shares, when redeemed, may be worth more or less
than their original cost. Dividends paid to each class of shares will
vary because of the different levels of account maintenance,
distribution and transfer agency fees applicable to each class, which
are deducted from the income available to be paid to shareholders.
<TABLE>
<CAPTION>
Recent Performance Results
12 Month 3 Month
1/31/98 10/31/97 1/31/97 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $10.78 $10.66 $10.43 +3.84%(1) +1.60%(1)
Class B Shares* 10.78 10.66 10.42 +3.94(1) +1.60(1)
Class C Shares* 10.79 10.66 10.43 +3.94(1) +1.70(1)
Class D Shares* 10.78 10.66 10.43 +3.84(1) +1.60(1)
Class A Shares -- Total Return* +8.81(2) +2.81(3)
Class B Shares -- Total Return* +8.36(4) +2.68(5)
Class C Shares -- Total Return* +8.26(6) +2.76(7)
Class D Shares -- Total Return* +8.70(8) +2.79(9)
Class A Shares -- Standardized 30-day Yield 3.57%
Class B Shares -- Standardized 30-day Yield 3.21%
Class C Shares -- Standardized 30-day Yield 3.11%
Class D Shares -- Standardized 30-day Yield 3.47%
* 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 $0.050 per share capital gains distributions.
(2) Percent change includes reinvestment of $0.496 per share ordinary income dividends and $0.050 per share capital gains
distributions.
(3) Percent change includes reinvestment of $0.127 per share ordinary income dividends and $0.050 per share capital gains
distributions.
(4) Percent change includes reinvestment of $0.442 per share ordinary income dividends and $0.050 per share capital gains
distributions.
(5) Percent change includes reinvestment of $0.114 per share ordinary income dividends and $0.050 per share capital gains
distributions.
(6) Percent change includes reinvestment of $0.433 per share ordinary income dividends and $0.050 per share capital gains
distributions.
(7) Percent change includes reinvestment of $0.111 per share ordinary income dividends and $0.050 per share capital gains
distributions.
(8) Percent change includes reinvestment of $0.486 per share ordinary income dividends and $0.050 per share capital gains
distributions.
(9) Percent change includes reinvestment of $0.125 per share ordinary income dividends and $0.050 per share capital gains
distributions.
</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
1997 10.46 10.72 $0.050 0.501 + 7.97
1/1/98 -- 1/31/98 10.72 10.78 -- 0.033 + 0.94
Total $0.050 Total $1.808
Cumulative total return as of 1/31/98: +29.06%**
* Figures may include short-term capital gains distributions.
** Figures do not include sales charge; results would be lower if sales charge was included.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class B Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
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
1997 10.46 10.72 $0.050 0.447 + 7.42
1/1/98 -- 1/31/98 10.72 10.78 -- 0.029 + 0.90
Total $0.050 Total $1.632
Cumulative total return as of 1/31/98: +26.87%**
* Figures may include short-term capital gains distributions.
** Figures do not reflect deduction of any sales charge; results would be lower if sales charge was deducted.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class C Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94 -- 12/31/94 $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
1997 10.47 10.72 $0.050 0.438 + 7.22
1/1/98 -- 1/31/98 10.72 10.79 -- 0.028 + 0.98
Total $0.050 Total $1.560
Cumulative total return as of 1/31/98: +27.10%**
* Figures may include short-term capital gains distributions.
** Figures do not reflect deduction of any sales charge; results would be lower if sales charge was deducted.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class D Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94 -- 12/31/94 $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
1997 10.46 10.72 $0.050 0.491 + 7.87
1/1/98 -- 1/31/98 10.72 10.78 -- 0.032 + 0.93
Total $0.050 Total $1.741
Cumulative total return as of 1/31/98: +29.22%**
* Figures may include short-term capital gains distributions.
** Figures do not include sales charge; results would be lower if sales charge was included.
</TABLE>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/97 +7.97% +3.65%
Inception (9/30/94)
through 12/31/97 +7.85 +6.50
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/97 +7.42% +3.42%
Inception (9/30/94)
through 12/31/97 +7.30 +7.04
* Maximum contingent deferred sales charge is 4% and is reduced
to 0% after 4 years.
** Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 12/31/97 +7.22% +6.22%
Inception (10/21/94)
through 12/31/97 +7.47 +7.47
* Maximum contingent deferred sales charge is 1% and is reduced
to 0% after 1 year.
** Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 12/31/97 +7.87% +3.55%
Inception (10/21/94)
through 12/31/97 +8.04 +6.67
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
<TABLE>
<CAPTION>
Merrill Lynch Arkansas Municipal Bond Fund January 31, 1998
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <C> <C> <C> <C>
Arkansas -- 89.2%
AA Aa3 $240 Arkansas State College Savings, GO, 5.45%** due 6/01/2013 $111
Arkansas State Development Finance Authority, S/F Mortgage Revenue Bonds (b):
AAA NR* 675 AMT, Series A, 7.30% due 3/01/2013 722
AAA NR* 500 (Mortgage-Backed Securities Program), Series H, 6.15% due 7/01/2016 (f) 531
AA NR* 500 Arkansas State Development Finance Authority, Wastewater System Revenue Bonds
(Revolving Loan Fund), Series A, 5.85% due 12/01/2019 535
AA Aa3 350 Arkansas State Refunding Bonds (Waste Disposal and Pollution), Series B, 6.25%
due 7/01/2020 375
NR* A 350 Arkansas State Student Loan Authority Revenue Bonds, AMT, Sub-Series B, 7.25%
due 6/01/2009 405
BBB+ Baa2 275 Baxter County, Arkansas, IDR, Refunding (Aeroquip-Trinova Corp. Project), 5.80%
due 10/01/2013 296
A- A3 1,000 Camden, Arkansas, Environmental Improvement Revenue Bonds (International
Paper Co. Project), AMT, Series A, 7.625% due 11/01/2018 1,201
A+ NR* 500 Conway, Arkansas, Public Facilities Board, Capital Improvement Revenue Bonds
(Hendrix College Project), 6% due 10/01/2026 530
AAA Aaa 350 Fort Smith, Arkansas, Water, Sewer and Construction Revenue Refunding Bonds,
6% due 10/01/2012 (c) 380
AAA Aaa 250 Independence County, Arkansas, PCR, Refunding (Arkansas Power and Light Co. Project),
6.25% due 1/01/2021 (d) 276
BBB+ Baa2 200 Jefferson County, Arkansas, PCR, Refunding (Arkansas Power and Light Co. Project),
6.30% due 6/01/2018 216
AAA Aaa 375 Little Rock, Arkansas, Municipal Airport Revenue Refunding Bonds, 6% due 11/01/2014 (c) 402
AA+ Aa 500 Little Rock, Arkansas, Refunding (Capital Improvement), 6.25% due 2/01/2008 518
AAA Aaa 400 North Little Rock, Arkansas, Electric Revenue Refunding Bonds, Series A, 6.50%
due 7/01/2015 (c) 478
BBB+ Baa2 300 Pope County, Arkansas, PCR, Refunding (Arkansas Power and Light Co. Project),
6.30% due 12/01/2016 325
A- NR* 500 Pulaski County, Arkansas, Hospital Revenue Bonds (Arkansas Children's Hospital Project),
Series A, 6.20% due 3/01/2022 527
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) 542
AAA Aaa 320 University Central, Arkansas, Housing Systems Revenue Bonds, Series A, 5.20%
due 4/01/2028 (e) 320
NR* A1 500 University of Arkansas, Various Facility Revenue Bonds (Fayetteville Campus), 5%
due 11/01/2022 496
AAA Aaa 500 West Memphis, Arkansas, Public Utility System, Revenue Refunding Bonds, Series A,
5.25% due 12/01/2004 (c) 532
Puerto Rico -- 9.6%
A Baa1 325 Puerto Rico Commonwealth, GO, UT, 6.50% due 7/01/2004 (a) 372
AAA Aaa 320 Puerto Rico Commonwealth, Highway and Transportation Authority, Highway
Revenue Bonds, Series T, 6.625% due 7/01/2002 (a) 358
AAA Aaa 270 Puerto Rico Public Buildings Authority Revenue Bonds (GTO Government Facilities),
Series A, 6.25% due 7/01/2012 (e) 317
Total Investments (Cost -- $9,867) -- 98.8% 10,765
Other Assets Less Liabilities -- 1.2% 127
-------
Net Assets -- 100.0% $10,892
=======
(a) Prerefunded.
(b) GNMA Collateralized.
(c) MBIA Insured.
(d) FSA Insured.
(e) AMBAC Insured.
(f) FNMA Collateralized.
* Not Rated.
** Represents a zero coupon bond; the interest rate shown is the effective yield at the time of purchase by the Fund.
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.
PORTFOLIO ABBREVIATIONS
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, 1998
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $9,866,948) (Note 1a) $10,765,417
Cash 37,930
Receivables:
Interest $146,528
Beneficial interest sold 1,164 147,692
--------
Deferred organization expenses (Note 1e) 26,757
Prepaid registration fees and other assets (Note 1e) 17,334
-----------
Total assets 10,995,130
-----------
Liabilities: Payables:
Beneficial interest redeemed 16,701
Dividends to shareholders (Note 1f) 7,258
Distributor (Note 2) 3,702
Investment adviser (Note 2) 928 28,589
--------
Accrued expenses and other liabilities 74,058
-----------
Total liabilities 102,647
-----------
Net Assets: Net assets $10,892,483
===========
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited number of
Consist of: shares authorized $14,918
Class B Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 66,126
Class C Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 10,360
Class D Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 9,624
Paid-in capital in excess of par 9,969,619
Accumulated realized capital losses on investments -- net (76,633)
Unrealized appreciation on investments -- net 898,469
-----------
Net assets $10,892,483
===========
Net Asset Value: Class A -- Based on net assets of $1,608,543 and 149,181 shares
of beneficial interest outstanding $10.78
===========
Class B -- Based on net assets of $7,128,892 and 661,257 shares
of beneficial interest outstanding $10.78
===========
Class C -- Based on net assets of $1,117,334 and 103,600 shares
of beneficial interest outstanding $10.79
===========
Class D -- Based on net assets of $1,037,714 and 96,243 shares
of beneficial interest outstanding $10.78
===========
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Six Months Ended
January 31, 1998
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned $314,196
(Note 1d):
Expenses: Investment advisory fees (Note 2) $30,568
Professional fees 23,711
Account maintenance and distribution fees -- Class B (Note 2) 18,491
Accounting services (Note 2) 11,645
Printing and shareholder reports 8,647
Registration fees (Note 1e) 7,188
Amortization of organization expenses (Note 1e) 6,313
Account maintenance and distribution fees -- Class C (Note 2) 3,170
Transfer agent fees -- Class B (Note 2) 2,287
Pricing fees 1,303
Custodian fees 594
Account maintenance fees -- Class D (Note 2) 510
Transfer agent fees -- Class A (Note 2) 412
Trustees' fees and expenses 326
Transfer agent fees -- Class C (Note 2) 292
Transfer agent fees -- Class D (Note 2) 256
--------
Total expenses before reimbursement 115,713
Reimbursement of expenses (Note 2) (25,539)
--------
Total expenses after reimbursement 90,174
--------
Investment income -- net 224,022
--------
Realized & Realized gain on investments -- net 28,272
Unrealized Gain on Change in unrealized appreciation on investments -- net 97,042
Investments -- Net --------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $349,336
========
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
Increase (Decrease) in Net Assets: Jan. 31, 1998 July 31, 1997
<S> <C> <C> <C>
Operations: Investment income -- net $224,022 $500,291
Realized gain on investments -- net 28,272 89,647
Change in unrealized appreciation on investments -- net 97,042 304,799
----------- -----------
Net increase in net assets resulting from operations 349,336 894,737
----------- -----------
Dividends & Investment income -- net:
Distributions to Class A (36,452) (78,970)
Shareholders Class B (145,202) (336,828)
(Note 1f): Class C (20,242) (34,323)
Class D (22,126) (50,170)
Realized gain on investments -- net:
Class A (8,847) --
Class B (39,542) --
Class C (6,067) --
Class D (5,535) --
----------- -----------
Net decrease in net assets resulting from dividends and distributions
to shareholders (284,013) (500,291)
----------- -----------
Beneficial Interest Net decrease in net assets derived from beneficial interest
Transactions transactions (350,663) (261,170)
(Note 4): ----------- -----------
Net Assets: Total increase (decrease) in net assets (285,340) 133,276
Beginning of period 11,177,823 11,044,547
----------- -----------
End of period $10,892,483 $11,177,823
=========== ===========
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Class A
For the For the
Six Period
The following per share data and ratios have been derived Months Sept. 30,
from information provided in the financial statements. Ended For the Year 1994+ to
Jan. 31, Ended July 31, July 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.72 $10.34 $10.29 $10.00
Operating ------ ------ ------ ------
Performance: Investment income -- net .24 .52 .55 .50
Realized and unrealized gain on investments -- net .12 .38 .05 .29
------ ------ ------ ------
Total from investment operations .36 .90 .60 .79
------ ------ ------ ------
Less dividends and distributions:
Investment income -- net (.24) (.52) (.55) (.50)
Realized gain on investments -- net (.06) -- -- --
------ ------ ------ ------
Total dividends and distributions (.30) (.52) (.55) (.50)
------ ------ ------ ------
Net asset value, end of period $10.78 $10.72 $10.34 $10.29
====== ====== ====== ======
Total Investment Based on net asset value per share 3.41%++++ 8.94% 5.94% 8.13%++++
Return:** ====== ====== ====== ======
Ratios to Expenses, net of reimbursement 1.21%* .83% .49% .11%*
Average ====== ====== ====== ======
Net Assets: Expenses 1.67%* 1.92% 3.17% 2.32%*
====== ====== ====== ======
Investment income -- net 4.44%* 4.96% 5.28% 5.94%*
====== ====== ====== ======
Supplemental Net assets, end of period (in thousands) $1,608 $1,781 $1,710 $2,251
Data: ====== ====== ====== ======
Portfolio turnover 24.87% 41.07% 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>
<TABLE>
<CAPTION>
Class B
For the For the
Six Period
The following per share data and ratios have been derived Months Sept. 30,
from information provided in the financial statements. Ended For the Year 1994+ to
Jan. 31, Ended July 31, July 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.71 $10.34 $10.29 $10.00
Operating ------ ------ ------ ------
Performance: Investment income -- net .21 .46 .50 .46
Realized and unrealized gain on investments -- net .13 .37 .05 .29
------ ------ ------ ------
Total from investment operations .34 .83 .55 .75
------ ------ ------ ------
Less dividends and distributions:
Investment income -- net (.21) (.46) (.50) (.46)
Realized gain on investments -- net (.06) -- -- --
------ ------ ------ ------
Total dividends and distributions (.27) (.46) (.50) (.46)
------ ------ ------ ------
Net asset value, end of period $10.78 $10.71 $10.34 $10.29
====== ====== ====== ======
Total Investment Based on net asset value per share 3.24%++++ 8.29% 5.39% 7.68%++++
Return:** ====== ====== ====== ======
Ratios to Expenses, net of reimbursement 1.73%* 1.34% 1.00% .63%*
Average ====== ====== ====== ======
Net Assets: Expenses 2.19%* 2.44% 3.69% 2.83%*
====== ====== ====== ======
Investment income -- net 3.93%* 4.46% 4.77% 5.41%*
====== ====== ====== ======
Supplemental Net assets, end of period (in thousands) $7,129 $7,527 $7,573 $8,145
Data: ====== ====== ====== ======
Portfolio turnover 24.87% 41.07% 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>
<TABLE>
<CAPTION>
Class C
For the For the
Six Period
The following per share data and ratios have been derived Months Oct. 21,
from information provided in the financial statements. Ended For the Year 1994+ to
Jan. 31, Ended July 31, July 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.72 $10.34 $10.30 $9.92
Operating ------ ------ ------ ------
Performance: Investment income -- net .21 .46 .49 .41
Realized and unrealized gain on investments -- net .13 .38 .04 .38
------ ------ ------ ------
Total from investment operations .34 .84 .53 .79
------ ------ ------ ------
Less dividends and distributions:
Investment income -- net (.21) (.46) (.49) (.41)
Realized gain on investments -- net (.06) -- -- --
------ ------ ------ ------
Total dividends and distributions (.27) (.46) (.49) (.41)
------ ------ ------ ------
Net asset value, end of period $10.79 $10.72 $10.34 $10.30
====== ====== ====== ======
Total Investment Based on net asset value per share 3.19%++++ 8.29% 5.19% 8.13%++++
Return:** ====== ====== ====== ======
Ratios to Expenses, net of reimbursement 1.82%* 1.44% 1.11% .85%*
Average ====== ====== ====== ======
Net Assets: Expenses 2.28%* 2.51% 3.81% 2.90%*
====== ====== ====== ======
Investment income -- net 3.83%* 4.36% 4.68% 5.00%*
====== ====== ====== ======
Supplemental Net assets, end of period (in thousands) $1,117 $843 $681 $558
Data: ====== ====== ====== ======
Portfolio turnover 24.87% 41.07% 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>
<TABLE>
<CAPTION>
Class D
For the For the
Six Period
The following per share data and ratios have been derived Months Oct. 21,
from information provided in the financial statements. Ended For the Year 1994+ to
Jan. 31, Ended July 31, July 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.71 $10.34 $10.29 $9.92
Operating ------ ------ ------ ------
Performance: Investment income -- net .23 .51 .54 .46
Realized and unrealized gain on investments -- net .13 .37 .05 .37
------ ------ ------ ------
Total from investment operations .36 .88 .59 .83
------ ------ ------ ------
Less dividends and distributions:
Investment income -- net (.23) (.51) (.54) (.46)
Realized gain on investments -- net (.06) -- -- --
------ ------ ------ ------
Total dividends and distributions (.29) (.51) (.54) (.46)
------ ------ ------ ------
Net asset value, end of period $10.78 $10.71 $10.34 $10.29
====== ====== ====== ======
Total Investment Based on net asset value per share 3.46%++++ 8.73% 5.84% 8.54%++++
Returm:** ====== ====== ====== ======
Ratios to Expenses, net of reimbursement 1.32%* .92% .60% .29%*
Average ====== ====== ====== ======
Net Assets: Expenses 1.77%* 2.03% 3.31% 2.37%*
====== ====== ====== ======
Investment income -- net 4.34%* 4.87% 5.18% 5.64%*
====== ====== ====== ======
Supplemental Net assets, end of period (in thousands) $1,038 $1,027 $1,081 $723
Data: ====== ====== ====== ======
Portfolio turnover 24.87% 41.07% 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>
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
in the over-the-counter market or on the basis of yield equivalents as
obtained from one or more dealers that make markets in the securities.
Financial futures contracts and options thereon, which are traded on
exchanges, are valued at their settlement prices as of the close of
such exchanges. Short-term investments with 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, including valuations furnished by a pricing
service retained by the Trust, which may utilize a matrix system for
valuations. The procedures of the pricing service and its valuations
are reviewed by the officers of the Trust under the general supervision
of the Trustees.
(b) Derivative financial instruments -- The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses
may arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
[bullet] Financial futures contracts -- The Fund may purchase or sell
interest rate futures contracts and options on such futures contracts
for the purpose of hedging the market risk on existing 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, 1998, FAM earned
fees of $30,568, of which $25,539 was voluntarily waived.
Pursuant to the Distribution Plans adopted by the Fund in accordance
with Rule 12b-1 under the Investment Company Act of 1940, the Fund
pays the Distributor ongoing account maintenance and distribution
fees. The fees are accrued daily and paid monthly at annual rates
based upon the average daily net assets of the shares as follows:
Account
Maintenance Distribution
Fee Fee
Class B 0.25% 0.25%
Class C 0.25% 0.35%
Class D 0.10% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co., also
provides account maintenance and distribution services to the Fund.
The ongoing account maintenance fee compensates the Distributor and
MLPF&S for providing account maintenance services to Class B, Class C
and Class D shareholders. The ongoing distribution fee compensates the
Distributor and MLPF&S for providing shareholder and distribution-
related services to Class B and Class C shareholders.
For the six months ended January 31, 1998, MLFD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the Fund's
Class A and Class D Shares as follows:
MLFD MLPF&S
Class A $42 $534
Class D $9 $113
For the six months ended January 31, 1998, MLPF&S received contingent
deferred sales charges of $7,965 and $1,086 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, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended January 31, 1998 were $2,640,923 and $2,971,183,
respectively.
Net realized and unrealized gains as of January 31, 1998 were as
follows:
Realized Unrealized
Gains Gains
Long-term investments $28,272 $898,469
------- --------
Total $28,272 $898,469
======= ========
As of January 31, 1998, net unrealized appreciation for Federal income
tax purposes aggregated $898,469, all of which related to appreciated
securities. The aggregate cost of investments at January 31, 1998 for
Federal income tax purposes was $9,866,948.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest
transactions was $350,663 and $261,170 for the six months ended
January 31, 1998 and for the year ended July 31, 1997, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Six Dollar
Months Ended January 31, 1998 Shares Amount
Shares sold 4,930 $52,507
Shares issued to shareholders
in reinvestment of dividends
and distributions 1,509 16,114
--------- -----------
Total issued 6,439 68,621
Shares redeemed (23,442) (249,014)
--------- -----------
Net decrease (17,003) $(180,393)
========= ===========
Class A Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 35,203 $367,600
Shares issued to shareholders
in reinvestment of dividends 1,402 14,641
--------- -----------
Total issued 36,605 382,241
Shares redeemed (35,841) (373,351)
--------- -----------
Net increase 764 $8,890
========= ===========
Class B Shares for the Six Dollar
Months Ended January 31, 1998 Shares Amount
Shares sold 11,258 $119,648
Shares issued to shareholders
in reinvestment of dividends
and distributions 5,392 57,553
--------- -----------
Total issued 16,650 177,201
Shares redeemed (58,001) (618,223)
--------- -----------
Net decrease (41,351) $(441,022)
========= ===========
Class B Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 74,005 $772,339
Shares issued to shareholders
in reinvestment of dividends 9,799 102,192
--------- -----------
Total issued 83,804 874,531
Shares redeemed (113,809) (1,184,832)
--------- -----------
Net decrease (30,005) $(310,301)
========= ===========
Class C Shares for the Six Months Dollar
Ended January 31, 1998 Shares Amount
Shares sold 33,405 $355,460
Shares issued to shareholders
in reinvestment of dividends
and distributions 2,212 23,626
--------- -----------
Total issued 35,617 379,086
Shares redeemed (10,629) (112,965)
--------- -----------
Net increase 24,988 $266,121
========= ===========
Class C Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 13,218 $136,944
Shares issued to shareholders
in reinvestment of dividends 2,985 31,157
--------- -----------
Total issued 16,203 168,101
Shares redeemed (3,473) (36,684)
--------- -----------
Net increase 12,730 $131,417
========= ===========
Class D Shares for the Six Months Dollar
Ended January 31, 1998 Shares Amount
Shares sold 3,056 $32,933
Shares issued to shareholders
in reinvestment of dividends
and distributions 1,403 14,962
--------- -----------
Total issued 4,459 47,895
Shares redeemed (4,081) (43,264)
--------- -----------
Net increase 378 $4,631
========= ===========
Class D Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 3,819 $39,700
Shares issued to shareholders
in reinvestment of dividends 2,932 30,581
--------- -----------
Total issued 6,751 70,281
Shares redeemed (15,461) (161,457)
--------- -----------
Net decrease (8,710) $(91,176)
========= ===========
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
Robert E. Putney, III, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
