Exhibit 17.e
MERRILL LYNCH
ARKANSAS
MUNICIPAL
BOND FUND
FUND LOGO
Annual Report
July 31, 2000
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
July 31, 2000
TO OUR SHAREHOLDERS
The Municipal Market Environment During the six months ended July 31, 2000, US
domestic economic growth remained robust. After growing at a 4.2% annual rate
in 1999, US domestic economic growth expanded at a 4.8% rate during the first
quarter of 2000 and at a 5.2% rate during the second quarter. However, despite
these significant growth rates, few price measure indicators have shown any
meaningful signs of future price pressures at the consumer level, despite the
lowest unemployment rates since 1970. With few signs of any economic slowdown,
the Federal Reserve Board continued to raise short-term interest rates in
February, March and May 2000. The Federal Reserve Board cited both the
continued growth of US employment and the continued strength of US equity
markets as reasons for attempting to moderate US economic growth before
inflationary price pressures can occur.
However, since then fixed-income markets have largely ignored strong economic
fundamentals and concentrated upon very positive technical supply factors.
Declining bond issuance--both current, and more importantly, expected future
issuance--helped push bond yields lower into mid-April 2000. In late January
and early February 2000, the US Treasury announced its intention to reduce the
amounts to be auctioned in the quarterly Treasury note and bond auctions.
Furthermore, budgetary surpluses allowed the US Treasury to repurchase
outstanding, higher-couponed Treasury issues, primarily in the 15-year and
longer maturity sector. Both these actions resulted in significant reduction
in the outstanding supply of longer-dated maturity US Treasury debt. Domestic
and international investors quickly began to accumulate what was expected to
become a scarce commodity and bond prices quickly rose.
By mid-April 2000, US Treasury bond yields had declined more than 80 basis
points (0.80%) to 5.67%. During the remainder of the period, US Treasury bond
prices were volatile as strong economic reports and investors' concerns of
additional moves by the Federal Reserve Board occasionally overshadowed the
positive technical position of the long-term US Treasury bond market.
Recently, a number of economic indicators have begun to suggest that the
actions taken by the Federal Reserve Board in 1999 and early 2000 have started
to affect US economic growth. Both new home sales and consumer spending have
slowed, suggesting that economic growth may subside into a 4%--4.5% range by
late 2000. In our opinion, this range of growth was targeted by the Federal
Reserve Board as being sustainable, given current productivity measures,
without endangering the present benign inflationary environment.
By June, investor focus returned to the dwindling supply of long- term US
Treasury securities and bond prices generally rose for the remainder of the
period. The decline in long-term US Treasury bond yields resulted in an
inverted yield curve as short-term and intermediate-term interest rates did
not fall proportionately to long-term interest rates as the Federal Reserve
Board was expected to continue to raise short-term interest rates. The current
inversion has had as much to do with debt reduction and US Treasury buybacks
as with investor expectations of slower economic growth. During the last six
months, US Treasury bond yields have declined more than 70 basis points to end
the period at 5.78%, their lowest monthly closing level since May 1999.
Tax-exempt bond yields also have declined in recent months. The decline has
largely been in response to the rally in US Treasury securities, as well as a
continued positive technical supply environment. States such as California and
Maryland have announced that their large current and anticipated future budget
surpluses will permit the cancellation or postponement of expected bond
issuance. Additionally, some issuers have also initiated tenders to repurchase
existing debt, reducing the supply of tax-exempt bonds in the secondary market
as well. Given the decline in available long- term US Treasury securities,
some investors who need longer maturity investment vehicles have begun to
consider long-term municipal bonds as potential substitutes. This has further
strengthened the overall positive technical position of the tax-exempt market.
During the last six months, long-term municipal revenue bond yields have
declined nearly 50 basis points to 5.85%, their lowest level since late August
1999, as measured by the Bond Buyer Revenue Bond Index.
Merrill Lynch Arkansas Municipal Bond Fund
July 31, 2000
The recent relative underperformance of the municipal bond market in recent
months has been especially disappointing given the strong technical position
the tax-exempt bond market has enjoyed. The issuance of long-term tax-exempt
securities has dramatically declined. During the last year, almost $200
billion in new long-term municipal securities was issued, a decline of almost
20% compared to the same period a year earlier. For the six months ended July
31, 2000, approximately $100 billion in new tax-exempt bonds was underwritten,
a decline of 17% compared to the same period in 1999.
Merrill Lynch Arkansas Municipal Bond Fund
July 31, 2000
Although investors received more than $45 billion in coupon payments, bond
maturities and the proceeds from early bond redemptions during June and July,
overall investor demand has diminished. Long-term municipal bond mutual funds
have seen consistent outflows in recent months as the yields of individual
securities have risen faster than those larger, more diverse mutual funds.
Thus far this year, tax-exempt mutual funds have had net redemptions of more
than $12 billion.
However, the rate at which these redemptions have been occurring has slowed in
recent months. Recent US equity market volatility, especially in the NASDAQ,
has reduced some investor interest in the stock market. This investor
interest, especially earlier this year, had been siphoning away demand for
municipal bonds by retail investors. Also, the demand from property and
casualty companies is expected to increase in the coming months. These firms
are becoming more profitable after experiencing losses in the past few years
resulting from a series of weather-related natural disasters. Yet as positive
as the tax-exempt bond market's technical environment has been for much of
this year, investor response to the reduction in both current and future
supply of US Treasury bonds has been overwhelmingly positive and municipal
bond yields have underperformed their taxable counterparts.
Significantly lower municipal bond yields are still likely to require weaker
US employment growth and consumer spending. The actions taken in recent months
by the Federal Reserve Board should eventually slow US economic growth. Recent
declines in US new home sales are perhaps the first sign that consumer
spending is being slowed by higher interest rates. Until further signs
develop, it is likely that the municipal bond market's current favorable
technical position will dampen significant tax-exempt interest rate volatility
and provide a stable environment for eventual improvement in municipal bond
prices.
Fiscal Year in Review
We entered the fiscal year ended July 31, 2000 in a defensive position in
response to heightened economic growth and inflationary fears. During the
first six months of the fiscal year, we initially retained our defensive
position toward the municipal bond market, then gradually shifted to a neutral
stance. We accomplished this shift by investing the majority of the Fund's
cash reserve and by purchasing bonds with longer maturities in exchange for
bonds with shorter maturities. Our goal in this shift of strategy was to both
enhance shareholder income and to take advantage of the highest absolute
municipal yields since the spring of 1997. During the last six months, we
maintained our neutral investment position and fully invested status for the
majority of the period. We found it prudent to maintain this position in
anticipation of clearer signs regarding future economic growth and inflation
expectations. Our shift in strategy to a neutral stance from a defensive one
aided the Fund's performance during the last six months as municipal yields
declined in conjunction with the US Treasury market.
During the fiscal year, the Fund's investment restructuring was somewhat
inhibited by a lack of municipal bond issuance. Arkansas municipal issuance
declined 13% from year ago levels. While the lack of supply may have aided in
keeping the prices of Arkansas municipal bonds relatively firm, it also
limited our options of coupon structuring, issuer diversification and call
protection. We continually monitor the call protection, credit quality, coupon
structuring and diversification of the Fund in an effort to provide optimal
performance. The decline in new municipal bond issuance can be traced, in
part, to the strong fiscal performance of municipal entities at most levels of
government.
Merrill Lynch Arkansas Municipal Bond Fund
July 31, 2000
Our strategy throughout the period resulted in above-average total return
performance when compared to the industry average, as measured by the Lipper
Analytical Services, Inc. Other States Municipal Debt Fund Average. The Fund's
Class A, Class B, Class C and Class D Shares returned +2.68%, +2.16%, +2.16%
and +2.58%, respectively, compared to the average return of +1.91% for the
Lipper Analytical Services, Inc. Other States Municipal Debt Fund Average.
(Fund results shown do not reflect sales charges and would be lower if sales
charges were included. Complete performance information can be found on pages
4 and 5 of this report to shareholders.) Looking ahead, we intend to remain
fully invested in the municipal market in an effort to enhance shareholder
income. We will be looking for opportunities provided by new Arkansas
municipal issuance to enhance the Fund's call protection and issuer
diversification. We will also consider taking a more aggressive investment
stance should the economic indicators continue to point to a cooling of growth
and a more stable inflation environment.
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 and Trustee
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Robert D. Sneeden)
Robert D. Sneeden
Portfolio Manager
August 30, 2000
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 Investment Managers since 1994 as
Assistant Vice President and Portfolio Manager.
Merrill Lynch Arkansas Municipal Bond Fund
July 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.
Recent Performance Results*
6 Month 12 Month Since Inception Standardized
As of July 31, 2000 Total Return Total Return Total Return 30-Day Yield
ML Arkansas Municipal Bond Fund Class A Shares +5.18% +2.68% +36.19% 3.09%
ML Arkansas Municipal Bond Fund Class B Shares +4.91 +2.16 +32.19 2.71
ML Arkansas Municipal Bond Fund Class C Shares +4.86 +2.16 +32.12 2.62
ML Arkansas Municipal Bond Fund Class D Shares +5.13 +2.58 +36.02 3.00
*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
July 31, 2000
PERFORMANCE DATA (concluded)
Total Return Based on a $10,000 Investment
A line graph depicting the growth of ML Arkansas Municipal Bond Fund's Class A
and Class B Shares compared with growth of the Lehman Brothers Municipal Bond
Index++++. Beginning and ending values are:
9/30/94** 7/00
ML Arkansas Municipal Bond Fund++--
Class A Shares* $ 9,600 $13,074
ML Arkansas Municipal Bond Fund++--
Class B Shares* $10,000 $13,219
Lehman Brothers Municipal Bond
Index++++ $10,000 $14,585
A line graph depicting the growth of ML Arkansas Municipal Bond Fund's Class C
and Class D Shares compared with growth of the Lehman Brothers Municipal Bond
Index++++. Beginning and ending values are:
10/21/94** 7/00
ML Arkansas Municipal Bond Fund++--
Class C Shares* $10,000 $13,212
ML Arkansas Municipal Bond Fund++--
Class D Shares* $ 9,600 $13,060
Lehman Brothers Municipal Bond
Index++++ $10,000 $14,849
*Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
**Commencement of operations.
++ML Arkansas Municipal Bond Fund invests primarily in long-term
investment-grade obligations issued by or on behalf of the state of Arkansas,
its political subdivisions, agencies and instrumentalities and obligations of
other qualifying issuers.
++++This unmanaged Index consists of long-term revenue bonds, prerefunded
bonds, general obligation bonds and insured bonds. The starting date for the
Index in the Class A & Class B Shares' graph is from 9/30/94 and in the Class
C & Class D Shares' graph is from 10/21/94.
Past performance is not predictive of future performance.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
One Year Ended 6/30/00 +1.82% -2.25%
Five Years Ended 6/30/00 +4.63 +3.78
Inception (9/30/94) through 6/30/00 +5.32 +4.58
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
One Year Ended 6/30/00 +1.30% -2.61%
Five Years Ended 6/30/00 +4.08 +4.08
Inception (9/30/94) through 6/30/00 +4.77 +4.77
*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*
One Year Ended 6/30/00 +1.20% +0.23%
Five Years Ended 6/30/00 +4.00 +4.00
Inception(10/21/94)through6/30/00 +4.81 +4.81
*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*
One Year Ended 6/30/00 +1.72% -2.35%
Five Years Ended 6/30/00 +4.51 +3.66
Inception (10/21/94) through 6/30/00 +5.34 +4.59
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
Merrill Lynch Arkansas Municipal Bond Fund
July 31, 2000
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face
Ratings Ratings Amount Issue Value
Arkansas--87.2%
BBB- Baa3 $250 Arkansas State Development Finance Authority, Hospital Revenue Bonds
(Washington Regional Medical Center), 7.375% due 2/01/2030 $ 252
NR* Aaa 240 Arkansas State Development Finance Authority, M/F Housing Revenue Bonds
(Pines Apartments Project), AMT, Series A, 5.85% due 11/15/2012 (b) 242
Arkansas State Development Finance Authority, S/F Mortgage Revenue Bonds (d):
AAA NR* 325 AMT, Series A, 7.30% due 3/01/2013 336
AAA NR* 290 (Mortgage Backed Securities Program), Series H, 6.15% due 7/01/2016 (b) 296
AA NR* 300 Arkansas State Development Finance Authority, Wastewater System Revenue Bonds
(Revolving Loan Fund), Series A, 5.85% due 12/01/2019 307
Arkansas State, GO (College Savings), Series A:
AA Aa2 770 6.09%** due 6/01/2016 321
AA Aa2 750 5.95%** due 6/01/2017 293
NR* A 250 Arkansas State Student Loan Authority Revenue Bonds, AMT, Sub-Series B,
7.25% due 6/01/2009 280
A A3 275 Baxter County, Arkansas, IDR, Refunding (Aeroquip Corp. Project),
5.80% due 10/01/2013 278
BBB+ Baa1 625 Camden, Arkansas, Environmental Improvement Revenue Bonds (International
Paper Co. Project), AMT, Series A, 7.625% due 11/01/2018 673
AAA Aaa 250 Fort Smith, Arkansas, Water, Sewer and Construction Revenue Refunding Bonds,
6% due 10/01/2012 (f) 254
AAA Aaa 200 Jonesboro, Arkansas, Residential Housing and Health Care Facilities Board,
Hospital Revenue Refunding Bonds (Saint Bernards Regional Medical Center),
Series B, 5.90% due 7/01/2016 (e) 206
AA Aa3 200 Little Rock, Arkansas, GO, Refunding (Capital Improvement), 6.25% due 2/01/2008 200
AAA Aaa 300 North Little Rock, Arkansas, Electric Revenue Refunding Bonds, Series A,
6.50% due 7/01/2015 (f) 337
BBB+ Baa2 300 Pope County, Arkansas, PCR, Refunding (Arkansas Power & Light Co. Project),
6.30% due 12/01/2016 290
AAA Aaa 200 Saline County, Arkansas, Retirement Housing and Healthcare Facilities Board
Revenue Refunding Bonds (Evangelist Lutheran Project), 5.80% due 6/01/2011 (e) 207
AAA Aaa 300 Sebastian County, Arkansas, Community Junior College District, GO, 5.95% due
4/01/2029 (e) 307
AAA Aaa 250 University of Central Arkansas, Housing System Revenue Bonds, 6.50%
due 1/01/2031 (c) 274
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
M/F Multi-Family
PCR Pollution Control Revenue Bonds
S/F Single-Family
VRDN Variable Rate Demand Notes
Merrill Lynch Arkansas Municipal Bond Fund
July 31, 2000
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
S&P Moody's Face
Ratings Ratings Amount Issue Value
Puerto Rico--11.0%
AAA Aaa $225 Puerto Rico Commonwealth, GO, 6.50% due 7/01/2004 (g) $ 246
A1+ VMIG1++ 200 Puerto Rico Commonwealth, Highway and Transportation Authority, Transportation
Revenue Refunding Bonds, VRDN, Series A, 3.85% due 7/01/2028 (a)(e) 200
AAA Aaa 250 Puerto Rico Electric Power Authority, Power Revenue Bonds, Series DD, 5% due
7/01/2028 (f) 231
Total Investments (Cost--$5,762)--98.2% 6,030
Other Assets Less Liabilities--1.8% 113
------
Net Assets--100.0% $6,143
======
(a)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at July 31, 2000.
(b)FNMA Collateralized.
(c)FSA Insured.
(d)GNMA Collateralized.
(e)AMBAC Insured.
(f)MBIA Insured.
(g)Prerefunded.
*Not Rated.
**Represents a zero coupon bond; the interest rate shown reflects the
effective yield at the time of purchase by the Fund.
++Highest short-term rating by Moody's Investors Service, Inc. Ratings of
issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
Merrill Lynch Arkansas Municipal Bond Fund
July 31, 2000
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of July 31, 2000
Assets: Investments, at value (identified cost--$5,762,399) $ 6,029,816
Cash 92,720
Interest receivable 73,316
Prepaid registration fees and other assets 6,421
------------
Total assets 6,202,273
------------
Liabilities: Payables:
Dividends to shareholders $ 3,648
Distributor 1,649
Investment adviser 488 5,785
------------
Accrued expenses and other liabilities 53,839
------------
Total liabilities 59,624
------------
Net Assets: Net assets $ 6,142,649
============
Net Assets Class A Shares of beneficial interest, $.10 par value,
Consist of: unlimited number of shares authorized $ 17,151
Class B Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 29,784
Class C Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 8,058
Class D Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 5,035
Paid-in capital in excess of par 5,823,068
Accumulated distributions in excess of realized capital gains on
investments--net (7,864)
Unrealized appreciation on investments--net 267,417
------------
Net assets $ 6,142,649
============
Net Asset Value: Class A--Based on net assets of $1,755,413 and 171,511 shares of
beneficial interest outstanding $ 10.23
============
Class B--Based on net assets of $3,047,368 and 297,842 shares of
beneficial interest outstanding $ 10.23
============
Class C--Based on net assets of $824,743 and 80,577 shares of
beneficial interest outstanding $ 10.24
============
Class D--Based on net assets of $515,125 and 50,345 shares of
beneficial interest outstanding $ 10.23
============
See Notes to Financial Statements.
Merrill Lynch Arkansas Municipal Bond Fund
July 31, 2000
FINANCIAL INFORMATION (continued)
Statement of Operations
For the Year Ended
July 31, 2000
Investment Income: Interest and amortization of premium and discount earned $ 449,571
Expenses: Professional fees $ 75,031
Printing and shareholder reports 42,543
Investment advisory fees 41,200
Accounting services 29,117
Account maintenance and distribution fees--Class B 18,843
Account maintenance and distribution fees--Class C 5,323
Registration fees 4,652
Trustees' fees and expenses 3,311
Pricing fees 2,803
Transfer agent fees--Class B 2,628
Custodian fees 2,574
Amortization of organization expenses 2,033
Transfer agent fees--Class A 1,219
Account maintenance fees--Class D 699
Transfer agent fees--Class C 566
Transfer agent fees--Class D 397
Other 534
------------
Total expenses before reimbursement 233,473
Reimbursement of expenses (33,709)
------------
Total expenses after reimbursement 199,764
------------
Investment income--net 249,807
------------
Realized & Realized gain on investments--net 86,616
Unrealized Change in unrealized appreciation on investments--net (233,518)
Gain (Loss) on ------------
Investments--Net: Net Increase in Net Assets Resulting from Operations $ 102,905
============
See Notes to Financial Statements.
Merrill Lynch Arkansas Municipal Bond Fund
July 31, 2000
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets
For the Year Ended July 31,
Increase (Decrease) in Net Assets: 2000 1999
Operations: Investment income--net $ 249,807 $ 403,718
Realized gain on investments--net 86,616 46,480
Change in unrealized appreciation on investments--net (233,518) (295,486)
------------ ------------
Net increase in net assets resulting from operations 102,905 154,712
------------ ------------
Dividends & Investment income--net:
Distributions to Class A (78,474) (116,434)
Shareholders: Class B (119,133) (208,977)
Class C (27,152) (38,527)
Class D (25,048) (39,780)
Realized gain on investments--net:
Class A (9,978) (401)
Class B (17,113) (871)
Class C (3,905) (157)
Class D (3,167) (137)
In excess of realized gain on investments--net:
Class A (2,297) (7,697)
Class B (3,939) (16,730)
Class C (899) (3,009)
Class D (729) (2,632)
------------ ------------
Net decrease in net assets resulting from dividends
and distributions to shareholders (291,834) (435,352)
------------ ------------
Beneficial Net decrease in net assets derived from beneficial
Interest interest transactions (3,041,477) (2,495,606)
Transactions: ------------ ------------
Net Assets: Total decrease in net assets (3,230,406) (2,776,246)
Beginning of year 9,373,055 12,149,301
------------ ------------
End of year $ 6,142,649 $ 9,373,055
============ ============
See Notes to Financial Statements.
Merrill Lynch Arkansas Municipal Bond Fund
July 31, 2000
FINANCIAL INFORMATION (continued)
Financial Highlights
The following per share data and ratios have been derived
from information provided in the financial statements. Class A
For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
Per Share Net asset value, beginning of year $ 10.39 $ 10.69 $ 10.72 $ 10.34 $ 10.29
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .37 .43 .47 .52 .55
Realized and unrealized gain (loss) on
investments--net (.11) (.27) .03 .38 .05
-------- -------- -------- -------- --------
Total from investment operations .26 .16 .50 .90 .60
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.37) (.43) (.47) (.52) (.55)
Realized gain on investments--net (.04) --++ (.04) -- --
In excess of realized gain on
investments--net (.01) (.03) (.02) -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.42) (.46) (.53) (.52) (.55)
-------- -------- -------- -------- --------
Net asset value, end of year $ 10.23 $ 10.39 $ 10.69 $ 10.72 $ 10.34
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 2.68% 1.42% 4.79% 8.94% 5.94%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 2.32% 1.63% 1.18% .83% .49%
Net Assets: ======== ======== ======== ======== ========
Expenses 2.77% 2.08% 1.63% 1.92% 3.17%
======== ======== ======== ======== ========
Investment income--net 3.66% 4.00% 4.38% 4.96% 5.28%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 1,756 $ 2,606 $ 3,246 $ 1,781 $ 1,710
Data: ======== ======== ======== ======== ========
Portfolio turnover 43.29% 9.12% 61.45% 41.07% 28.82%
======== ======== ======== ======== ========
*Total investment returns exclude the effects of sales charges.
++Amount is less than $.01 per share.
See Notes to Financial Statements.
Merrill Lynch Arkansas Municipal Bond Fund
July 31, 2000
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
The following per share data and ratios have been derived
from information provided in the financial statements. Class B
For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
Per Share Net asset value, beginning of year $ 10.39 $ 10.69 $ 10.71 $ 10.34 $ 10.29
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .32 .37 .42 .46 .50
Realized and unrealized gain (loss) on
investments--net (.11) (.27) .04 .37 .05
-------- -------- -------- -------- --------
Total from investment operations .21 .10 .46 .83 .55
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.32) (.37) (.42) (.46) (.50)
Realized gain on investments--net (.04) --++ (.04) -- --
In excess of realized gain on
investments--net (.01) (.03) (.02) -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.37) (.40) (.48) (.46) (.50)
-------- -------- -------- -------- --------
Net asset value, end of year $ 10.23 $ 10.39 $ 10.69 $ 10.71 $ 10.34
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 2.16% .91% 4.35% 8.29% 5.39%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 2.83% 2.13% 1.70% 1.34% 1.00%
Net Assets: ======== ======== ======== ======== ========
Expenses 3.28% 2.58% 2.16% 2.44% 3.69%
======== ======== ======== ======== ========
Investment income--net 3.15% 3.50% 3.89% 4.46% 4.77%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 3,047 $ 4,815 $ 6,539 $ 7,527 $ 7,573
Data: ======== ======== ======== ======== ========
Portfolio turnover 43.29% 9.12% 61.45% 41.07% 28.82%
======== ======== ======== ======== ========
*Total investment returns exclude the effects of sales charges.
++Amount is less than $.01 per share.
See Notes to Financial Statements.
Merrill Lynch Arkansas Municipal Bond Fund
July 31, 2000
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
The following per share data and ratios have been derived
from information provided in the financial statements. Class C
For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
Per Share Net asset value, beginning of year $ 10.39 $ 10.69 $ 10.72 $ 10.34 $ 10.30
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .31 .36 .41 .46 .49
Realized and unrealized gain (loss) on
investments--net (.10) (.27) .03 .38 .04
-------- -------- -------- -------- --------
Total from investment operations .21 .09 .44 .84 .53
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.31) (.36) (.41) (.46) (.49)
Realized gain on investments--net (.04) --++ (.04) -- --
In excess of realized gain on
investments--net (.01) (.03) (.02) -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.36) (.39) (.47) (.46) (.49)
-------- -------- -------- -------- --------
Net asset value, end of year $ 10.24 $ 10.39 $ 10.69 $ 10.72 $ 10.34
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 2.16% .81% 4.16% 8.29% 5.19%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 2.94% 2.23% 1.80% 1.44% 1.11%
Net Assets: ======== ======== ======== ======== ========
Expenses 3.39% 2.68% 2.25% 2.51% 3.81%
======== ======== ======== ======== ========
Investment income--net 3.05% 3.40% 3.79% 4.36% 4.68%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 825 $ 981 $ 1,202 $ 843 $ 681
Data: ======== ======== ======== ======== ========
Portfolio turnover 43.29% 9.12% 61.45% 41.07% 28.82%
======== ======== ======== ======== ========
*Total investment returns exclude the effects of sales charges.
++Amount is less than $.01 per share.
See Notes to Financial Statements.
Merrill Lynch Arkansas Municipal Bond Fund
July 31, 2000
FINANCIAL INFORMATION (concluded)
Financial Highlights (concluded)
The following per share data and ratios have been derived
from information provided in the financial statements. Class D
For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
Per Share Net asset value, beginning of year $ 10.39 $ 10.69 $ 10.71 $ 10.34 $ 10.29
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .36 .42 .46 .51 .54
Realized and unrealized gain (loss) on
investments--net (.11) (.27) .04 .37 .05
-------- -------- -------- -------- --------
Total from investment operations .25 .15 .50 .88 .59
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.36) (.42) (.46) (.51) (.54)
Realized gain on investments--net (.04) --++ (.04) -- --
In excess of realized gain on
investments--net (.01) (.03) (.02) -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.41) (.45) (.52) (.51) (.54)
-------- -------- -------- -------- --------
Net asset value, end of year $ 10.23 $ 10.39 $ 10.69 $ 10.71 $ 10.34
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 2.58% 1.32% 4.79% 8.73% 5.84%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 2.41% 1.73% 1.29% .92% .60%
Net Assets: ======== ======== ======== ======== ========
Expenses 2.86% 2.18% 1.74% 2.03% 3.31%
======== ======== ======== ======== ========
Investment income--net 3.57% 3.90% 4.29% 4.87% 5.18%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 515 $ 971 $ 1,162 $ 1,027 $ 1,081
Data: ======== ======== ======== ======== ========
Portfolio turnover 43.29% 9.12% 61.45% 41.07% 28.82%
======== ======== ======== ======== ========
*Total investment returns exclude the effects of sales charges.
++Amount is less than $.01 per share.
See Notes to Financial Statements.
Merrill Lynch Arkansas Municipal Bond Fund
July 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 accounting principles generally accepted in the United States
of America, which may require the use of management accruals and estimates.
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
investment strategies to increase or decrease the level of risk to which the
Fund is exposed more quickly and efficiently than transactions in other types
of instruments. 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.
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 FAM Distributors, Inc.
("FAMD" or the "Distributor"), which is a wholly-owned subsidiary of Merrill
Lynch Group, Inc.
Merrill Lynch Arkansas Municipal Bond Fund
July 31, 2000
NOTES TO FINANCIAL STATEMENTS (concluded)
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 year ended July 31, 2000, FAM earned fees of
$41,200, of which $33,709 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 Distribution
Maintenance 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 year ended July 31, 2000, FAMD earned underwriting discounts and
MLPF&S earned dealer concessions on sales of the Fund's Class A and Class D
Shares as follows:
FAMD MLPF&S
Class A $3 $ 36
Class D $9 $135
For the year ended July 31, 2000, MLPF&S received contingent deferred sales
charges of $5,492 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, FAMD and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended July 31, 2000 were $3,036,534 and $5,735,480, respectively.
Net realized gains (losses) for the year ended July 31, 2000 and net
unrealized gains as of July 31, 2000 were as follows:
Realized
Gains Unrealized
(Losses) Gains
Long-term investments $ 96,121 $ 267,417
Financial futures contracts (9,505) --
---------- ----------
Total $ 86,616 $ 267,417
========== ==========
As of July 31, 2000, net unrealized appreciation for Federal income tax
purposes aggregated $267,417, of which $268,564 related to appreciated
securities and $1,147 related to depreciated securities. The aggregate cost of
investments at July 31, 2000 for Federal income tax purposes was $5,762,399.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest transactions was
$3,041,477 and $2,495,606 for the years ended July 31, 2000 and July 31, 1999,
respectively.
Transactions in shares of beneficial interest for each class were as follows:
Class A Shares for the Year Dollar
Ended July 31, 2000 Shares Amount
Shares sold 6,929 $ 69,999
Shares issued to shareholders
in reinvestment of dividends
and distributions 6,108 61,464
---------- ----------
Total issued 13,037 131,463
Shares redeemed (92,383) (927,010)
---------- ----------
Net decrease (79,346) $ (795,547)
========== ==========
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)
========== ==========
Merrill Lynch Arkansas Municipal Bond Fund
July 31, 2000
Class B Shares for the Year Dollar
Ended July 31, 2000 Shares Amount
Shares sold 5,038 $ 50,648
Shares issued to shareholders
in reinvestment of dividends
and distributions 5,830 58,669
---------- ----------
Total issued 10,868 109,317
Automatic conversion of shares (5,142) (52,655)
Shares redeemed (171,553) (1,729,563)
---------- ----------
Net decrease (165,827) $(1,672,901)
========== ==========
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 Year Dollar
Ended July 31, 2000 Shares Amount
Shares issued to shareholders
in reinvestment of dividends
and distributions 2,803 $ 28,218
Shares redeemed (16,623) (168,143)
---------- ----------
Net decrease (13,820) $ (139,925)
========== ==========
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 Year Dollar
Ended July 31, 2000 Shares Amount
Shares sold 342 $ 3,456
Automatic conversion of shares 5,142 52,655
Shares issued to shareholders
in reinvestment of dividends
and distributions 1,315 13,270
---------- ----------
Total issued 6,799 69,381
Shares redeemed (49,936) (502,485)
---------- ----------
Net decrease (43,137) $ (433,104)
========== ==========
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)
========== ==========
5. Short-Term Borrowings:
On December 3, 1999, the Fund, along with certain other funds managed by FAM
and its affiliates, entered into a one-year, unsecured $1,000,000,000 credit
agreement with The Bank of New York and other lenders. The funds may borrow
money for temporary or emergency purposes to meet shareholder redemptions.
Each fund may borrow up to the maximum amount allowable under the fund's
current prospectus and statement of additional information, subject to various
other legal, regulatory or contractual limits. The funds collectively pay a
commitment fee of .09% per annum on the available portion of the facility.
Amounts borrowed under the facility bear interest at the Federal Funds rate
plus .50%. The Fund did not borrow from the facility during the year ended
July 31, 2000.
Merrill Lynch Arkansas Municipal Bond Fund
July 31, 2000
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders, Merrill Lynch Arkansas Municipal Bond
Fund of Merrill Lynch Multi-State Municipal Series Trust:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of Merrill Lynch Arkansas Municipal
Bond Fund of Merrill Lynch Multi-State Municipal Series Trust as of July 31,
2000, the related statements of operations for the year then ended and changes
in net assets for each of the years in the two-year period then ended, and the
financial highlights for each of the years in the five-year period then ended.
These financial statements and the financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned at July 31, 2000 by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch
Arkansas Municipal Bond Fund of Merrill Lynch Multi- State Municipal Series
Trust as of July 31, 2000, the results of its operations, the changes in its
net assets, and the financial highlights for the respective stated periods in
conformity with accounting principles generally accepted in the United States
of America.
Deloitte & Touche LLP
Princeton, New Jersey
September 8, 2000
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid monthly by Merrill Lynch
Arkansas Municipal Bond Fund during its taxable year ended July 31, 2000
qualify as tax-exempt interest dividends for Federal income tax purposes.
Additionally, the following table summarizes the taxable distributions paid by
the Fund during the year:
Record Payable Ordinary Long-Term
Date Date Income Capital Gains*
12/20/99 12/31/99 $.044867 $.009637
*The entire distribution is subject to a maximum 20% tax rate.
Please retain this information for your records.
Merrill Lynch Arkansas Municipal Bond Fund
July 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