MERRILL LYNCH
ARKANSAS
MUNICIPAL
BOND FUND
FUND LOGO
Semi-Annual Report
January 31, 2000
Officers and Trustees
Terry K. Glenn, President and Trustee
James H. Bodurtha, Trustee
Herbert I. London, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Arthur Zeikel, Trustee
Vincent R. Giordano, Senior Vice President
Kenneth A. Jacob, Vice President
Michael A. Kalinoski, Vice President
Donald C. Burke, Vice President and
Treasurer
Alice A. Pellegrino, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
Robert R. Martin, Trustee of Merrill Lynch Arkansas Municipal Bond
Fund has recently retired. The Fund's Board of Trustees wishes Mr.
Martin well in his retirement.
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
Printed on post-consumer recycled paper
Merrill Lynch Arkansas Municipal Bond Fund
January 31, 2000
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the six months ended January 31, 2000, continued strong
domestic growth, gradual improvement in foreign economies and
investor concerns regarding future inflationary pressures pushed
long-term fixed-income bond yields higher. The Federal Reserve Board
continued to raise short-term interest rates in August and November
1999 as well as just after the period's close, seeking to moderate
US economic growth and maintain the existing benign inflationary
environment. US economic growth, in part intensified by Year 2000
preparations, grew 5.8% during the last fiscal quarter of 1999 and
had an annual rate of 4.1% for 1999. A number of inflationary
indicators have also begun to signal some increase in price
pressures.
However, most investors believe that the Federal Reserve Board will
be extremely vigilant in preventing such pressures from any material
escalation. US Treasury bond yields responded by rising
approximately 60 basis points (0.60%) by mid-January 2000. A strong
rally, largely based upon an expected significant reduction in the
future supply of US Treasury 30-year maturity bonds, pushed yields
lower to 6.50% at January 31, 2000. Over the last six months, yields
on 30-year US Treasury bonds rose approximately 40 basis points.
The tax-exempt bond market was also under pressure throughout the
entire period. Despite receiving more than $30 billion in coupon
payments, bond maturities and proceeds from early redemptions in
December and January, overall investor demand has diminished. It is
likely that the returns generated by the US equity market have
continued to attract investor attention and have left little demand
for competing investment alternatives. At January 31, 2000, the long-
term tax-exempt revenue bond yield, as measured by the Bond Buyer
Revenue Index, was 6.34%, an increase of nearly 70 basis points over
the last six months.
Issuance by municipalities has significantly declined in recent
months. Over the last six months, less than $100 billion in long-
term tax-exempt bonds were issued, representing a decline of over
20% compared to the same period a year ago. During the last three
months, less than $45 billion in long-term bonds were issued by
various municipalities. This most recent quarterly issuance is 30%
below the level of the January 31, 1999 quarter. Additionally,
during January 2000, less than $8 billion in municipal debt was
underwritten, down more than 50% from January 1999 levels. This
represents the lowest monthly issuance in over five years. Toward
the end of 1999, consensus estimates for 2000 annual issuance were
in the $210 billion--$215 billion range. January's underwritings, as
well as those expected to be issued in the near future, have led
some analysts to revise their forecasts to the $190 billion range.
We believe an overall reduction in bond supply in the coming year
should help support the municipal bond market's overall technical
position. While tax-exempt bond yields, which are at their highest
level in over three years, have attracted significant retail
investor interest, institutional demand declined sharply. Long-term
municipal mutual funds have seen consistent outflows in recent
months as the yields of individual securities rose faster than those
of larger, more diverse mutual funds. During the six months ended
January 31, 2000, tax-exempt mutual funds have had net redemptions
of approximately $9 billion. Also, the demand from property and
casualty insurance companies has weakened as a result of the losses
and anticipated losses incurred from a series of damaging storms
across much of the eastern United States. Additionally, many
institutional investors who have in recent years been attracted to
the municipal bond market by historically attractive tax-exempt bond
yield ratios of over 90%, found other asset classes even more
attractive. Even with a reduced supply position, tax-exempt issuers
have been forced to repeatedly raise municipal bond yields in an
attempt to attract adequate demand. We believe a reduced bond supply
going forward is likely to promote a more closely balanced
supply/demand structure and foster a more stable tax-exempt interest
rate environment.
Looking ahead, it appears to us that long-term tax-exempt bond
yields will remain under pressure, trading in a broad range centered
around current levels. Investors are also likely to remain concerned
regarding future action by the Federal Reserve Board in early 2000.
Any improvement in bond prices may be contingent upon weakening in
both US employment growth and consumer spending. The 100 basis point
Merrill Lynch Arkansas Municipal Bond Fund
January 31, 2000
rise in US Treasury bond yields seen thus far could negatively
affect US economic growth. The US housing market is likely to be
among the first sectors to be affected, as some declines have
already been evidenced because of higher mortgage rates. We believe
it is also unrealistic to expect double-digit returns in US equity
markets to continue indefinitely. Much of the US consumer's wealth
is tied to recent stock market appreciation. Any slowing in these
incredible growth rates may reduce consumer spending. We believe
that these factors suggest that the worst of the recent increase in
bond yields has passed and stable, if not slightly improving, bond
prices may be expected.
Portfolio Strategy
During the six months ended January 31, 2000, we initially retained
a defensive position toward the municipal bond market, then
gradually moved to a neutral stance. We accomplished this shift by
swapping bonds with shorter maturties and/or higher coupons for
bonds with longer maturities and/or lower coupons. Our strategy has
been to seek to enhance income and to take advantage of the highest
absolute municipal yields. During the period, we also sought to
capitalize on market discrepancies, caused in part by Year 2000
concerns, as we purchased bonds we believed to be undervalued
combined with selling bonds we believed to be overvalued.
Arkansas bond issuance was comparatively light during the six-month
period ended January 31, 2000, particularly in the second half.
Arkansas bond prices remained relatively firm compared to the
national level because of the light issuance. However, the light
issuance presented us with fewer opportunities within the municipal
bond market.
Looking ahead, we intend to remain fully invested in the municipal
market in an effort to enhance shareholder income. We do not expect
to significantly alter our present stance toward the market given
the current economic backdrop. We will continue to take advantage of
any opportunities in the municipal marketplace that we believe is
appropriate.
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,
(Terry K. Glenn)
Terry K. Glenn
President
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Michael Kalinoski)
Michael Kalinoski
Vice President and Portfolio Manager
March 6, 2000
We are pleased to announce that Michael A. Kalinoski is responsible
for the day-to-day management of Merrill Lynch Arkansas Municipal
Bond Fund. Mr. Kalinoski has been employed by Merrill Lynch Asset
Management, L.P. since 1999 as Vice President and Portfolio Manager.
Mr. Kalinoski was previously employed from 1993 to 1999 as a
municipal trader with Strong Capital Management.
Merrill Lynch Arkansas Municipal Bond Fund
January 31, 2000
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. (There is no initial
sales charge for automatic share conversions.)
* 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. Figures shown in the "Recent Performance
Results" and "Average Annual Total Return" 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. The Fund's Investment Adviser voluntarily waived a
portion of its management fee. Without such waiver, the Fund's
performance would have been lower.
<TABLE>
Recent Performance Results*
<CAPTION>
6 Month 12 Month Since Inception Standardized
As of January 31, 2000 Total Return Total Return Total Return 30-Day Yield
<S> <C> <C> <C> <C>
ML Arkansas Municipal Bond Fund Class A Shares -2.38% -4.26% +29.48% 3.13%
ML Arkansas Municipal Bond Fund Class B Shares -2.63 -4.75 +26.00 2.75
ML Arkansas Municipal Bond Fund Class C Shares -2.58 -4.75 +26.00 2.66
ML Arkansas Municipal Bond Fund Class D Shares -2.43 -4.36 +29.39 3.04
*Investment results shown do not reflect sales charges; results
would be lower if a sales charge was included. Total investment
returns are based on changes in net asset values for the periods
shown, and assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date. The Fund's
since inception periods are from 9/30/94 for Class A & Class B
Shares and from 10/21/94 for Class C & Class D Shares.
Merrill Lynch Arkansas Municipal Bond Fund
January 31, 2000
PERFORMANCE DATA (concluded)
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/99 -2.74% -6.63%
Five Years Ended 12/31/99 +5.71 +4.85
Inception (9/30/94)
through 12/31/99 +5.17 +4.35
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/99 -3.24% -6.95%
Five Years Ended 12/31/99 +5.15 +5.15
Inception (9/30/94) through 12/31/99 +4.61 +4.61
*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 12/31/99 -3.32% -4.25%
Five Years Ended 12/31/99 +5.05 +5.05
Inception (10/21/94)
through 12/31/99 +4.66 +4.66
*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 12/31/99 -2.93% -6.81%
Five Years Ended 12/31/99 +5.58 +4.73
Inception (10/21/94) through 12/31/99 +5.19 +4.37
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face
Ratings Ratings Amount Issue Value
Arkansas--90.4%
<S> <S> <C> <S> <C>
Arkansas State Development Finance Authority, S/F Mortgage
Revenue Bonds (d):
AAA NR* $ 350 AMT, Series A, 7.30% due 3/01/2013 $ 362
AAA NR* 340 (Mortgage-Backed Securities Program), Series H, 6.15% due 7/01/2016 (b) 339
AAA Aaa 300 Arkansas State Development Finance Authority, State Agencies Facilities
Revenue Bonds (Department of Corrections Project), Series A, 5.70% due
11/01/2019 (c) 288
A NR* 300 Arkansas State Development Finance Authority, Wastewater System Revenue
Bonds (Revolving Loan Fund), Series A, 5.85% due 12/01/2019 293
AA Aa3 750 Arkansas State, GO (College Savings), Series A, 5.95% due 6/01/2017 (h) 260
</TABLE>
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
VRDN Variable Rate Demand Notes
Merrill Lynch Arkansas Municipal Bond Fund
January 31, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face
Ratings Ratings Amount Issue Value
Arkansas (concluded)
<S> <S> <C> <S> <C>
AA Aa3 $ 250 Arkansas State, GO, Refunding (Waste Disposal and Pollution), Series B,
6.25% due 7/01/2020 $ 254
NR* A 250 Arkansas State Student Loan Authority Revenue Bonds, AMT, Sub-Series B,
7.25% due 6/01/2009 270
A A3 275 Baxter County, Arkansas, IDR, Refunding (Aeroquip Corp. Project),
5.80% due 10/01/2013 266
BBB+ A3 750 Camden, Arkansas, Environmental Improvement Revenue Bonds (International Paper
Co. Project), AMT, Series A, 7.625% due 11/01/2018 799
A1+ P1 200 Clark County, Arkansas, Solid Waste Disposal Revenue Bonds (Reynolds Metals
Company Project), AMT, VRDN, 3.33% due 8/01/2022 (a) 200
A+ NR* 300 Conway, Arkansas, Public Facilities Board, Capital Improvement Revenue Bonds
(Hendrix College Project), 6% due 10/01/2026 293
AAA Aaa 250 Fort Smith, Arkansas, Water, Sewer and Construction Revenue Refunding Bonds,
6% due 10/01/2012 (f) 255
BBB+ Baa2 200 Jefferson County, Arkansas, PCR, Refunding (Arkansas Power & Light Co. Project),
6.30% due 6/01/2018 188
AAA Aaa 200 Jonesboro, Arkansas, Residential Housing and Health Care Facilities Board,
Hospital Revenue Refunding Bonds (Saint Bernard's Regional Medical Center),
Series B, 5.90% due 7/01/2016 (e) 198
AA Aa3 500 Little Rock, Arkansas, GO, Refunding (Capital Improvement), 6.25% due 2/01/2008 501
AAA Aaa 375 Little Rock, Arkansas, Municipal Airport Revenue Refunding Bonds, 6% due
11/01/2014 (f) 381
AAA Aaa 300 North Little Rock, Arkansas, Electric Revenue Refunding Bonds, Series A,
6.50% due 7/01/2015 (f) 324
BBB+ Baa2 300 Pope County, Arkansas, PCR, Refunding (Arkansas Power & Light Co. Project),
6.30% due 12/01/2016 284
AAA Aaa 300 Saline County, Arkansas, Retirement Housing and Healthcare Facilities Board
Revenue Refunding Bonds (Evangelist Lutheran Project), 5.80% due 6/01/2011 (e) 302
AAA Aaa 300 Sebastian County, Arkansas, Community Junior College District, GO,
5.95% due 4/01/2029 (e) 295
AAA A3 250 University of Central Arkansas Revenue Bonds (Housing System), 6.50% due
1/01/2031 (c) 259
Puerto Rico--11.8%
AAA Aaa 325 Puerto Rico Commonwealth, GO, 6.50% due 7/01/2004 (g) 351
A1+ VMIG1++ 300 Puerto Rico Commonwealth, Highway and Transportation Authority, Transportation
Revenue Refunding Bonds, VRDN, Series A, 2.85% due 7/01/2028 (a)(e) 300
AAA Aaa 250 Puerto Rico Electric Power Authority, Power Revenue Bonds, Series DD,
5% due 7/01/2028 (f) 209
Total Investments (Cost--$7,375)--102.2% 7,471
Liabilities in Excess of Other Assets--(2.2%) (163)
-------
Net Assets--100.0% $ 7,308
=======
(a)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at January 31, 2000.
(b)FNMA Collateralized.
(c)FSA Insured.
(d)GNMA Collateralized.
(e)AMBAC Insured.
(f)MBIA Insured.
(g)Prerefunded.
(h)Represents a zero coupon bond; the interest rate shown reflects
the effective yield at the time of purchase by the Fund.
*Not Rated.
++Highest short-term rating by Moody's Investors Service, Inc.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Arkansas Municipal Bond Fund
January 31, 2000
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of January 31, 2000
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$7,374,846) $ 7,470,880
Cash 38,232
Interest receivable 94,764
Deferred organization expenses 2,033
Prepaid registration fees and other assets 6,459
------------
Total assets 7,612,368
------------
Liabilities: Payables:
Securities purchased $ 258,711
Dividends to shareholders 4,430
Distributor 1,916
Investment adviser 585 265,642
------------
Accrued expenses and other liabilities 38,590
------------
Total liabilities 304,232
------------
Net Assets: Net assets $ 7,308,136
============
Net Assets Class A Shares of beneficial interest, $.10 par value,
Consist of: unlimited number of shares authorized $ 22,223
Class B Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 36,550
Class C Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 8,901
Class D Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 6,123
Paid-in capital in excess of par 7,186,371
Undistributed realized capital gains on investments--net 4,387
Accumulated distributions in excess of realized capital gains on
investments--net (52,453)
Unrealized appreciation on investments--net 96,034
------------
Net assets $ 7,308,136
============
Net Asset Value: Class A--Based on net assets of $2,201,079 and 222,231 shares of
beneficial interest outstanding $ 9.90
============
Class B--Based on net assets of $3,619,114 and 365,497 shares of
beneficial interest outstanding $ 9.90
============
Class C--Based on net assets of $881,630 and 89,005 shares of
beneficial interest outstanding $ 9.91
============
Class D--Based on net assets of $606,313 and 61,226 shares of
beneficial interest outstanding $ 9.90
============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Arkansas Municipal Bond Fund
January 31, 2000
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Six Months Ended
January 31, 2000
<S> <S> <C> <C>
Investment Income: Interest and amortization of premium and discount earned $ 246,952
Expenses: Professional fees $ 36,487
Investment advisory fees 22,875
Printing and shareholder reports 18,268
Accounting services 17,959
Account maintenance and distribution fees--Class B 10,400
Registration fees 6,775
Account maintenance and distribution fees--Class C 2,781
Transfer agent fees--Class B 1,656
Pricing fees 1,485
Custodian fees 1,236
Amortization of organization expenses 1,039
Transfer agent fees--Class A 810
Account maintenance fees--Class D 413
Transfer agent fees--Class C 343
Trustees' fees and expenses 324
Transfer agent fees--Class D 277
Other 467
------------
Total expenses before reimbursement 123,595
Reimbursement of expenses (18,716)
------------
Total expenses after reimbursement 104,879
------------
Investment income--net 142,073
------------
Realized & Realized gain on investments--net 46,413
Unrealized Change in unrealized appreciation on investments--net (404,901)
Gain (Loss) on ------------
Investments--Net: Net Decrease in Net Assets Resulting from Operations $ (216,415)
============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Arkansas Municipal Bond Fund
January 31, 2000
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Six For the
Months Ended Year Ended
January 31, July 31,
Increase (Decrease) in Net Assets: 2000 1999
<S> <S> <C> <C>
Operations: Investment income--net $ 142,073 $ 403,718
Realized gain on investments--net 46,413 46,480
Change in unrealized appreciation on investments--net (404,901) (295,486)
------------ ------------
Net increase (decrease) in net assets resulting from operations (216,415) 154,712
------------ ------------
Dividends & Investment income--net:
Distributions to Class A (45,093) (116,434)
Shareholders: Class B (67,350) (208,977)
Class C (14,567) (38,527)
Class D (15,063) (39,780)
Realized gain on investments--net:
Class A (12,275) (401)
Class B (21,052) (871)
Class C (4,804) (157)
Class D (3,895) (137)
In excess of realized gain on investments--net:
Class A -- (7,697)
Class B -- (16,730)
Class C -- (3,009)
Class D -- (2,632)
------------ ------------
Net decrease in net assets resulting from dividends
and distributions to shareholders (184,099) (435,352)
------------ ------------
Beneficial Net decrease in net assets derived from beneficial
Interest interest transactions (1,664,405) (2,495,606)
Transactions: ------------ ------------
Net Assets: Total decrease in net assets (2,064,919) (2,776,246)
Beginning of period 9,373,055 12,149,301
------------ ------------
End of period $ 7,308,136 $ 9,373,055
============ ============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Arkansas Municipal Bond Fund
January 31, 2000
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
Class A
For the
Six
The following per share data and ratios have been derived Months
from information provided in the financial statements. Ended
Jan. 31, For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.39 $ 10.69 $ 10.72 $ 10.34 $ 10.29
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .19 .43 .47 .52 .55
Realized and unrealized gain (loss) on
investments--net (.44) (.27) .03 .38 .05
-------- -------- -------- -------- --------
Total from investment operations (.25) .16 .50 .90 .60
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.19) (.43) (.47) (.52) (.55)
Realized gain on investments--net (.05) --++ (.04) -- --
In excess of realized gain on
investments--net -- (.03) (.02) -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.24) (.46) (.53) (.52) (.55)
-------- -------- -------- -------- --------
Net asset value, end of period $ 9.90 $ 10.39 $ 10.69 $ 10.72 $ 10.34
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (2.38%)+++ 1.42% 4.79% 8.94% 5.94%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 2.18%* 1.63% 1.18% .83% .49%
Net Assets: ======== ======== ======== ======== ========
Expenses 2.63%* 2.08% 1.63% 1.92% 3.17%
======== ======== ======== ======== ========
Investment income--net 3.74%* 4.00% 4.38% 4.96% 5.28%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 2,201 $ 2,606 $ 3,246 $ 1,781 $ 1,710
Data: ======== ======== ======== ======== ========
Portfolio turnover 27.31% 9.12% 61.45% 41.07% 28.82%
======== ======== ======== ======== ========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Amount is less than $.01 per share.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Arkansas Municipal Bond Fund
January 31, 2000
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
Class B
For the
Six
The following per share data and ratios have been derived Months
from information provided in the financial statements. Ended
Jan. 31, For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.39 $ 10.69 $ 10.71 $ 10.34 $ 10.29
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .16 .37 .42 .46 .50
Realized and unrealized gain (loss) on
investments--net (.44) (.27) .04 .37 .05
-------- -------- -------- -------- --------
Total from investment operations (.28) .10 .46 .83 .55
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.16) (.37) (.42) (.46) (.50)
Realized gain on investments--net (.05) --++ (.04) -- --
In excess of realized gain on
investments--net -- (.03) (.02) -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.21) (.40) (.48) (.46) (.50)
-------- -------- -------- -------- --------
Net asset value, end of period $ 9.90 $ 10.39 $ 10.69 $ 10.71 $ 10.34
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (2.63%)+++ .91% 4.35% 8.29% 5.39%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 2.69%* 2.13% 1.70% 1.34% 1.00%
Net Assets: ======== ======== ======== ======== ========
Expenses 3.14%* 2.58% 2.16% 2.44% 3.69%
======== ======== ======== ======== ========
Investment income--net 3.23%* 3.50% 3.89% 4.46% 4.77%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 3,619 $ 4,815 $ 6,539 $ 7,527 $ 7,573
Data: ======== ======== ======== ======== ========
Portfolio turnover 27.31% 9.12% 61.45% 41.07% 28.82%
======== ======== ======== ======== ========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Amount is less than $.01 per share.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Arkansas Municipal Bond Fund
January 31, 2000
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
Class C
For the
Six
The following per share data and ratios have been derived Months
from information provided in the financial statements. Ended
Jan. 31, For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.39 $ 10.69 $ 10.72 $ 10.34 $ 10.30
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .16 .36 .41 .46 .49
Realized and unrealized gain (loss) on
investments--net (.43) (.27) .03 .38 .04
-------- -------- -------- -------- --------
Total from investment operations (.27) .09 .44 .84 .53
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.16) (.36) (.41) (.46) (.49)
Realized gain on investments--net (.05) --++ (.04) -- --
In excess of realized gain on
investments--net -- (.03) (.02) -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.21) (.39) (.47) (.46) (.49)
-------- -------- -------- -------- --------
Net asset value, end of period $ 9.91 $ 10.39 $ 10.69 $ 10.72 $ 10.34
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (2.58%)+++ .81% 4.16% 8.29% 5.19%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 2.79%* 2.23% 1.80% 1.44% 1.11%
Net Assets: ======== ======== ======== ======== ========
Expenses 3.24%* 2.68% 2.25% 2.51% 3.81%
======== ======== ======== ======== ========
Investment income--net 3.13%* 3.40% 3.79% 4.36% 4.68%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 882 $ 981 $ 1,202 $ 843 $ 681
Data: ======== ======== ======== ======== ========
Portfolio turnover 27.31% 9.12% 61.45% 41.07% 28.82%
======== ======== ======== ======== ========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Amount is less than $.01 per share.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Arkansas Municipal Bond Fund
January 31, 2000
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class D
For the
Six
The following per share data and ratios have been derived Months
from information provided in the financial statements. Ended
Jan. 31, For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.39 $ 10.69 $ 10.71 $ 10.34 $ 10.29
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .18 .42 .46 .51 .54
Realized and unrealized gain (loss) on
investments--net (.44) (.27) .04 .37 .05
-------- -------- -------- -------- --------
Total from investment operations (.26) .15 .50 .88 .59
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.18) (.42) (.46) (.51) (.54)
Realized gain on investments--net (.05) --++ (.04) -- --
In excess of realized gain on
investments--net -- (.03) (.02) -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.23) (.45) (.52) (.51) (.54)
-------- -------- -------- -------- --------
Net asset value, end of period $ 9.90 $ 10.39 $ 10.69 $ 10.71 $ 10.34
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (2.43%)+++ 1.32% 4.79% 8.73% 5.84%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 2.28%* 1.73% 1.29% .92% .60%
Net Assets: ======== ======== ======== ======== ========
Expenses 2.72%* 2.18% 1.74% 2.03% 3.31%
======== ======== ======== ======== ========
Investment income--net 3.64%* 3.90% 4.29% 4.87% 5.18%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 606 $ 971 $ 1,162 $ 1,027 $ 1,081
Data: ======== ======== ======== ======== ========
Portfolio turnover 27.31% 9.12% 61.45% 41.07% 28.82%
======== ======== ======== ======== ========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Amount is less than $.01 per share.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Arkansas Municipal Bond Fund
January 31, 2000
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. The Fund's
financial statements are prepared in accordance with generally
accepted accounting principles, which may require the use of
management accruals and estimates. 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.
* Financial futures contracts--The Fund may purchase or sell
financial 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 period not exceeding five years. 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. Distributions in excess
of realized capital gains are due primarily to differing tax
treatments for futures transactions and post-October losses.
Merrill Lynch Arkansas Municipal Bond Fund
January 31, 2000
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 ("MLFD" or the "Distributor"), a division of Princeton
Funds Distributor, Inc. ("PFD"), which is 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: .55%
of the Fund's average daily net assets not exceeding $500 million;
.525% of average daily net assets in excess of $500 million but not
exceeding $1 billion; and .50% of average daily net assets in excess
of $1 billion. For the six months ended January 31, 2000, FAM earned
fees of $22,875 of which $18,716 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 .25% .25%
Class C .25% .35%
Class D .10% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("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, 2000, 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 $ 3 $36
Class D $ 5 $68
For the six months ended January 31, 2000, MLPF&S received
contingent deferred sales charges of $4,310 relating to transactions
in Class B Shares.
Financial Data Services, Inc. ("FDS"), 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, FDS, PFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the the six months ended January 31, 2000 were and $2,085,119
and $3,413,484, respectively.
Net realized gains (losses) for the six months ended January 31,
2000 and net unrealized gains as of January 31, 2000 were as
follows:
Realized
Gains Unrealized
(Losses) Gains
Long-term investments $55,918 $96,034
Financial futures contracts (9,505) --
------- -------
Total $46,413 $96,034
======= =======
As of January 31, 2000, net unrealized appreciation for Federal
income tax purposes aggregated $96,034, of which $156,113 related to
appreciated securities and $60,079 related to depreciated
securities. The aggregate cost of investments at January 31, 2000
for Federal income tax purposes was $7,374,846.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest
transactions was $1,664,405 and $2,495,606 for the six months ended
January 31, 2000 and for the year ended July 31, 1999, respectively.
Merrill Lynch Arkansas Municipal Bond Fund
January 31, 2000
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Six Months Dollar
Ended January 31, 2000 Shares Amount
Shares sold 3,619 $ 36,647
Shares issued to shareholders
in reinvestment of dividends
and distributions 3,947 39,735
---------- -----------
Total issued 7,566 76,382
Shares redeemed (36,192) (366,401)
---------- -----------
Net decrease (28,626) $ (290,019)
========== ===========
Class A Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
Shares sold 58,547 $ 628,883
Shares issued to shareholders
in reinvestment of dividends
and distributions 7,659 81,888
---------- -----------
Total issued 66,206 710,771
Shares redeemed (118,930) (1,273,756)
---------- -----------
Net decrease (52,724) $ (562,985)
========== ===========
Class B Shares for the Six Months Dollar
Ended January 31, 2000 Shares Amount
Shares sold 4,665 $ 46,891
Shares issued to shareholders
in reinvestment of dividends
and distributions 3,748 37,711
---------- -----------
Total issued 8,413 84,602
Automatic conversion of shares (5,142) (52,655)
Shares redeemed (101,443) (1,026,608)
---------- -----------
Net decrease (98,172) $ (994,661)
========== ===========
Class B Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
Shares sold 30,609 $ 327,336
Shares issued to shareholders
in reinvestment of dividends
and distributions 7,428 79,411
---------- -----------
Total issued 38,037 406,747
Shares redeemed (186,045) (1,981,549)
---------- -----------
Net decrease (148,008) $(1,574,802)
========== ===========
Class C Shares for the Six Months Dollar
Ended January 31, 2000 Shares Amount
Shares issued to shareholders
in reinvestment of dividends
and distributions 1,675 $ 16,863
Shares redeemed (7,067) (71,628)
---------- -----------
Net decrease (5,392) $ (54,765)
========== ===========
Class C Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
Shares sold 14,301 $ 153,149
Shares issued to shareholders
in reinvestment of dividends
and distributions 3,344 35,776
---------- -----------
Total issued 17,645 188,925
Shares redeemed (35,638) (382,248)
---------- -----------
Net decrease (17,993) $ (193,323)
========== ===========
Class D Shares for the Six Months Dollar
Ended January 31, 2000 Shares Amount
Shares sold 170 $ 1,728
Automatic conversion of shares 5,142 52,655
Shares issued to shareholders
in reinvestment of dividends
and distributions 942 9,519
---------- -----------
Total issued 6,254 63,902
Shares redeemed (38,510) (388,862)
---------- -----------
Net decrease (32,256) $ (324,960)
========== ===========
Class D Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
Shares sold 12,204 $ 130,625
Shares issued to shareholders
in reinvestment of dividends
and distributions 2,377 25,384
---------- -----------
Total issued 14,581 156,009
Shares redeemed (29,804) (320,505)
---------- -----------
Net decrease (15,223) $ (164,496)
========== ===========
