Exhibit 17.i
Semi-Annual Report
January 31, 2001
Merrill Lynch
Arkansas Municipal
Bond Fund
www.mlim.ml.com
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
#20058--1/01
Merrill Lynch Arkansas Municipal Bond Fund
January 31, 2001
TO OUR SHAREHOLDERS
The Municipal Market Environment During the six months ended January 31, 2001,
long-term fixed-income bond yields generally declined. The strength seen in
the US economy in 1999 and early 2000 clearly has moderated in recent months.
After growing at approximately 5% in the first half of 2000, US gross domestic
product (GDP) declined to 2.2% during the third quarter of 2000. An initial
estimate of fourth quarter 2000 GDP growth was recently released at 1.4%.
Additionally, over the past six months, inflationary pressures have remained
well contained, largely in the 2%--3% range. By early September, US Treasury
bond yields had declined more than 20 basis points (0.20%) to 5.65% as a
result of moderating economic growth and low inflation.
However, rising oil and natural gas prices, rekindled investors' inflationary
fears, and US Treasury bond yields quickly rose to nearly 6% at the end of
September 2000. During October and into mid- November, long-term bond yields
fluctuated in response to declining commodity prices and the considerable
uncertainty surrounding the presidential election. In December 2000,
significant declines in US equity markets, especially the NASDAQ, as well as
another series of weak economic indicators combined to reestablish the decline
in long- term US Treasury bond yields. By mid-December, the Federal Reserve
Board announced that current economic conditions warranted the cessation of
the series of short-term interest rate increases they had initiated in
February 2000. Given the favorable economic environment and, at least, a
neutral Federal Reserve Board, investors were free again to focus upon the
ongoing US Treasury debt reduction program and forecasts of sizeable Federal
budgetary surpluses going forward. Many analysts and investors concluded that
there would be a significant future shortage of longer maturing US Treasury
securities. These factors helped push US Treasury bond yields lower. By the
end of December, US Treasury bond yields declined to 5.45%, their lowest
monthly closing level in almost two years.
Citing declining consumer confidence and weakening industrial production and
retail sales growth, the Federal Reserve Board lowered short-term interest
rates by 50 basis points twice during January 2001. This action triggered a
significant rebound in many US equity indexes, reducing the appeal of many US
fixed-income securities. Additionally, many investors sold US Treasury bonds
to realize recent profits believing that the Federal Reserve Board's actions
in January 2001, as well as those anticipated in the near future, would
quickly restore US economic growth to earlier levels. By the end of the
six-month period ended January 31, 2001, US Treasury bond yields declined
overall by nearly 30 basis points to close the period at 5.50%.
Long-term tax-exempt bonds also responded well to the positive economic
environment that developed during the last six months. While municipal bond
yields followed a downward pattern similar to that of US Treasury bonds,
tax-exempt bond price volatility was significantly reduced. Municipal bond
yields traded in a relatively narrow range, generally declining steadily
throughout the last six months. Overall investor demand for municipal bonds
has remained very positive, allowing tax-exempt bond yields, as measured by
the Bond Buyer Revenue Bond Index, to decline more than 40 basis points to end
the period at 5.43%, their lowest monthly closing level in over 18 months.
New long-term tax-exempt issuance has continued to decline on an annual basis,
although declines in bond yields have triggered a recent increase in municipal
underwritings. Most of this recent increase in tax-exempt issuance was
underwritten in January 2001. Lower bond yields were responsible for the
significant increase in refunding activity. Local and state issuers used the
recent period of lower bond yields as an opportunity to refinance outstanding,
higher-couponed debt issues at lower rates. Historically, January monthly
underwritings are among the lowest monthly issuance of the year. Despite the
surge in January issuance, long-term tax-exempt bond yields were still able to
decline, underscoring the ongoing positive technical position the municipal
market has enjoyed in recent quarters.
The reduction in annual issuance has helped provide much of the technical
support within the tax-exempt bond market. The demand for municipal bonds came
from a number of non-traditional and conventional sources. Fortunately, the
combination of reduced annual bond issuance and ongoing demand from
non-traditional sources has been able to more than offset the decline in
demand from tax-exempt mutual funds. This favorable balance has fostered the
significant decline in municipal bond yields seen in recent months.
The outlook for the tax-exempt bond market in 2001 appears quite favorable.
The steeply positive yield curve and relatively high credit quality that the
municipal bond market offers should continue to attract retail and
institutional investors seeking both tax- exempt income and a ready substitute
for relatively scarce US Government securities. Strong state and local
governmental financial conditions also suggest that issuance should remain
manageable in the coming months. Additionally, while it appears likely that
President Bush will keep his campaign promise to lower Federal income tax
rates in 2001, any legislation is unlikely to be enacted before late summer.
These factors suggest that the strong technical position the municipal market
has enjoyed is likely to continue. Given the recent market performance by
tax-exempt bonds over the past year, the strong returns illustrate the
excellent investment diversification municipal bonds can provide to investors.
Portfolio Strategy
During the past six months, we continued our strategy of seeking to limit the
Fund's volatility. With signs of a decline in US economic growth and consumer
confidence, there was a significant decrease in Arkansas municipal bond
interest rates from November 2000 to January 2001. As interest rates fell, we
maintained the Fund's strategy of selling interest rate-sensitive issues. With
the proceeds, we purchased bonds with a maturity range of 15 years--20 years.
During the six months ended January 31, 2001, new-issue supply was up only 1%
compared to the same period a year ago, making portfolio restructuring
difficult. Going forward, we expect to maintain the Fund's neutral position
and remain fully invested in an effort to enhance shareholder income.
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 Glenn)
Terry Glenn
President and Trustee
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Robert D. Sneeden)
Robert D. Sneeden
Vice President and Portfolio Manager
March 6, 2001
Merrill Lynch Arkansas Municipal Bond Fund
January 31, 2001
PROXY RESULTS
During the six-month period ended January 31, 2001, Merrill Lynch Arkansas
Municipal Bond Fund's shareholders voted on the following proposals. The
proposals were approved at a shareholders' meeting on December 21, 2000. The
description of each proposal and number of shares voted are as follows:
Shares Voted Shares Withheld
For From Voting
1. To elect the Fund's Board of Trustees: Terry K. Glenn 518,799 3,173
James H. Bodurtha 518,799 3,173
Herbert I. London 518,799 3,173
Joseph L. May 518,799 3,173
Andre F. Perold 518,799 3,173
Roberta Cooper Ramo 518,799 3,173
Shares Voted Shares Voted Shares Voted
For Against Abstain
2. To ratify the selection of Deloitte & Touche LLP as the Fund's
independent auditors for the current fiscal year. 521,973 0 0
3. To approve an amendment to the Fund's charter permitting
the Board to convert the Fund to "master/feeder" structure. 505,335 7,321 9,317
Merrill Lynch Arkansas Municipal Bond Fund
January 31, 2001
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 January 31, 2001 Total Return Total Return Total Return 30-Day Yield
ML Arkansas Municipal Bond Fund Class A Shares +5.08% +10.53% +43.11% 1.78%
ML Arkansas Municipal Bond Fund Class B Shares +4.81 + 9.96 +38.56 1.35
ML Arkansas Municipal Bond Fund Class C Shares +4.66 + 9.75 +38.28 1.26
ML Arkansas Municipal Bond Fund Class D Shares +5.03 +10.42 +42.86 1.69
*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, 2001
PERFORMANCE DATA (concluded)
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/00 +9.32% +4.95%
Five Years Ended 12/31/00 +4.49 +3.64
Inception (9/30/94)
through 12/31/00 +5.82 +5.13
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/00 +8.87% +4.87%
Five Years Ended 12/31/00 +3.96 +3.96
Inception (9/30/94) through 12/31/00 +5.28 +5.28
*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 12/31/00 +8.77% +7.77%
Five Years Ended 12/31/00 +3.86 +3.86
Inception (10/21/94)
through 12/31/00 +5.31 +5.31
*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 12/31/00 +9.32% +4.95%
Five Years Ended 12/31/00 +4.39 +3.54
Inception (10/21/94) through 12/31/00 +5.85 +5.15
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
PORTFOLIO ABBREVIATIONS
To simplify the listings of Merrill Lynch Arkansas Municipal Bond Fund's
portfolio holdings in the Schedule of Investments, we have abbreviated the
names of many of the securities according to the list at right.
AMT Alternative Minimum Tax (subject to)
GO General Obligation Bonds
IDR Industrial Development Revenue Bonds
S/F Single-Family
Merrill Lynch Arkansas Municipal Bond Fund
January 31, 2001
SCHEDULE OF INVESTMENTS
(in Thousands)
S&P Moody's Face
Ratings Ratings Amount Issue Value
Arkansas--86.8%
Arkansas State Development Finance Authority, S/F Mortgage Revenue Bonds (d):
AAA NR* $ 310 AMT, Series A, 7.30% due 3/01/2013 $ 319
AAA NR* 275 (Mortgage Backed Securities Program), Series H, 6.15% due 7/01/2016 (a) 290
AA NR* 300 Arkansas State Development Finance Authority, Wastewater System Revenue Bonds
(Revolving Loan Fund), Series A, 5.85% due 12/01/2019 315
Arkansas State, GO (College Savings), Series A:
AA Aa2 770 6.09%** due 6/01/2016 357
AA Aa2 750 5.95%** due 6/01/2017 328
NR* A 250 Arkansas State Student Loan Authority Revenue Bonds, AMT, Sub-Series B, 7.25%
due 6/01/2009 283
A A3 275 Baxter County, Arkansas, IDR, Refunding (Aeroquip Corp. Project), 5.80% due 10/01/2013 293
BBB+ Baa1 625 Camden, Arkansas, Environmental Improvement Revenue Bonds (International Paper Co.
Project), AMT, Series A, 7.625% due 11/01/2018 677
AAA Aaa 250 Fort Smith, Arkansas, Water, Sewer and Construction Revenue Refunding Bonds,
6% due 10/01/2012 (b) 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) 212
AAA Aaa 300 North Little Rock, Arkansas, Electric Revenue Refunding Bonds, Series A, 6.50%
due 7/01/2015 (b) 356
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) 213
AAA Aaa 300 Sebastian County, Arkansas, Community Junior College District, GO, 5.95% due 4/01/2029 (e) 320
AAA Aaa 250 University of Central Arkansas, Housing System Revenue Bonds, 6.50% due 1/01/2031 (c) 286
Puerto Rico--9.5%
AAA Aaa 225 Puerto Rico Commonwealth, GO, 6.50% due 7/01/2004 (f) 249
AAA Aaa 250 Puerto Rico Electric Power Authority, Power Revenue Bonds, Series DD, 5% due
7/01/2028 (b) 247
Total Investments (Cost--$4,571)--96.3% 4,999
Other Assets Less Liabilities--3.7% 190
-------
Net Assets--100.0% $ 5,189
=======
(a)FNMA Collateralized.
(b)MBIA Insured.
(c)FSA Insured.
(d)GNMA Collateralized.
(e)AMBAC Insured.
(f)Prerefunded.
*Not Rated.
**Represents a zero coupon or step bond; the interest rate shown
reflects the effective yield at the time of purchase by the Fund.
See Notes to Financial Statements.
Merrill Lynch Arkansas Municipal Bond Fund
January 31, 2001
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of January 31, 2001
Assets: Investments, at value (identified cost--$4,570,827) $ 4,998,558
Cash 183,409
Interest receivable 54,062
Prepaid registration fees and other assets 6,421
------------
Total assets 5,242,450
------------
Liabilities: Payables:
Dividends to shareholders $ 2,630
Distributor 1,521
Investment adviser 430 4,581
------------
Accrued expenses and other liabilities 48,698
------------
Total liabilities 53,279
------------
Net Assets: Net assets $ 5,189,171
============
Net Assets Class A Shares of beneficial interest, $.10 par value,
Consist of: unlimited number of shares authorized $ 13,254
Class B Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 24,591
Class C Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 8,218
Class D Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 3,455
Paid-in capital in excess of par 4,749,329
Accumulated realized capital losses on investments--net (29,543)
Accumulated distributions in excess of realized capital
gains on investments--net (7,864)
Unrealized appreciation on investments--net 427,731
------------
Net assets $ 5,189,171
============
Net Asset Value: Class A--Based on net assets of $1,389,098 and 132,535 shares of
beneficial interest outstanding $ 10.48
============
Class B--Based on net assets of $2,576,612 and 245,911 shares of
beneficial interest outstanding $ 10.48
============
Class C--Based on net assets of $861,453 and 82,182 shares of
beneficial interest outstanding $ 10.48
============
Class D--Based on net assets of $362,008 and 34,548 shares of
beneficial interest outstanding $ 10.48
============
See Notes to Financial Statements.
Merrill Lynch Arkansas Municipal Bond Fund
January 31, 2001
FINANCIAL INFORMATION (continued)
Statement of Operations
For the Six Months Ended
January 31, 2001
Investment Income: Interest and amortization of premium and discount earned $ 162,289
Expenses: Professional fees $ 26,164
Printing and shareholder reports 19,907
Accounting services 19,629
Investment advisory fees 15,373
Account maintenance and distribution fees--Class B 6,899
Registration fees 5,051
Trustees' fees and expenses 2,851
Account maintenance and distribution fees--Class C 2,543
Pricing fees 2,351
Transfer agent fees--Class B 1,059
Custodian fees 747
Transfer agent fees--Class A 481
Transfer agent fees--Class C 290
Account maintenance fees--Class D 226
Transfer agent fees--Class D 141
Other 1,671
------------
Total expenses before reimbursement 105,383
Reimbursement of expenses (12,578)
------------
Total expenses after reimbursement 92,805
------------
Investment income--net 69,484
------------
Realized & Realized gain on investments--net 29,061
Unrealized Change in unrealized appreciation on investments--net 160,314
Gain on ------------
Investments--Net: Net Increase in Net Assets Resulting from Operations $ 258,859
============
See Notes to Financial Statements.
Merrill Lynch Arkansas Municipal Bond Fund
January 31, 2001
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
January 31, July 31,
Increase (Decrease) in Net Assets: 2001 2000
Operations: Investment income--net $ 69,484 $ 249,807
Realized gain on investments--net 29,061 86,616
Change in unrealized appreciation on investments--net 160,314 (233,518)
------------ ------------
Net increase in net assets resulting from operations 258,859 102,905
------------ ------------
Dividends & Investment income--net:
Distributions to Class A (21,766) (78,474)
Shareholders: Class B (32,090) (119,133)
Class C (9,377) (27,152)
Class D (6,251) (25,048)
Realized gain on investments--net:
Class A (15,508) (9,978)
Class B (29,092) (17,113)
Class C (9,609) (3,905)
Class D (4,395) (3,167)
In excess of realized gain on investments--net:
Class A -- (2,297)
Class B -- (3,939)
Class C -- (899)
Class D -- (729)
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (128,088) (291,834)
------------ ------------
Beneficial Net decrease in net assets derived from beneficial interest
Interest transactions (1,084,249) (3,041,477)
Transactions: ------------ ------------
Net Assets: Total decrease in net assets (953,478) (3,230,406)
Beginning of period 6,142,649 9,373,055
------------ ------------
End of period $ 5,189,171 $ 6,142,649
============ ============
See Notes to Financial Statements.
Merrill Lynch Arkansas Municipal Bond Fund
January 31, 2001
FINANCIAL INFORMATION (continued)
Financial Highlights
Class A
For the
Six
Months
The following per share data and ratios have been derived Ended
from information provided in the financial statements. Jan. 31, For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 2001 2000 1999 1998 1997
Per Share Net asset value, beginning of period $ 10.23 $ 10.39 $ 10.69 $ 10.72 $ 10.34
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .16 .37 .43 .47 .52
Realized and unrealized gain (loss) on
investments--net .37 (.11) (.27) .03 .38
-------- -------- -------- -------- --------
Total from investment operations .53 .26 .16 .50 .90
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.16) (.37) (.43) (.47) (.52)
Realized gain on investments--net (.12) (.04) --++ (.04) --
In excess of realized gain on
investments--net -- (.01) (.03) (.02) --
-------- -------- -------- -------- --------
Total dividends and distributions (.28) (.42) (.46) (.53) (.52)
-------- -------- -------- -------- --------
Net asset value, end of period $ 10.48 $ 10.23 $ 10.39 $ 10.69 $ 10.72
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 5.08%+++ 2.68% 1.42% 4.79% 8.94%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 2.96%* 2.32% 1.63% 1.18% .83%
Net Assets: ======== ======== ======== ======== ========
Expenses 3.41%* 2.77% 2.08% 1.63% 1.92%
======== ======== ======== ======== ========
Investment income--net 2.84%* 3.66% 4.00% 4.38% 4.96%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 1,389 $ 1,756 $ 2,606 $ 3,246 $ 1,781
Data: ======== ======== ======== ======== ========
Portfolio turnover .00% 43.29% 9.12% 61.45% 41.07%
======== ======== ======== ======== ========
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Amount is less than $.01 per share.
+++Aggregate total investment return.
See Notes to Financial Statements.
Merrill Lynch Arkansas Municipal Bond Fund
January 31, 2001
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
Class B
For the
Six
Months
The following per share data and ratios have been derived Ended
from information provided in the financial statements. Jan. 31, For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 2001 2000 1999 1998 1997
Per Share Net asset value, beginning of period $ 10.23 $ 10.39 $ 10.69 $ 10.71 $ 10.34
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .12 .32 .37 .42 .46
Realized and unrealized gain (loss) on
investments--net .37 (.11) (.27) .04 .37
-------- -------- -------- -------- --------
Total from investment operations .49 .21 .10 .46 .83
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.12) (.32) (.37) (.42) (.46)
Realized gain on investments--net (.12) (.04) --++ (.04) --
In excess of realized gain on
investments--net -- (.01) (.03) (.02) --
-------- -------- -------- -------- --------
Total dividends and distributions (.24) (.37) (.40) (.48) (.46)
-------- -------- -------- -------- --------
Net asset value, end of period $ 10.48 $ 10.23 $ 10.39 $ 10.69 $ 10.71
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 4.81%+++ 2.16% .91% 4.35% 8.29%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 3.48%* 2.83% 2.13% 1.70% 1.34%
Net Assets: ======== ======== ======== ======== ========
Expenses 3.93%* 3.28% 2.58% 2.16% 2.44%
======== ======== ======== ======== ========
Investment income--net 2.33%* 3.15% 3.50% 3.89% 4.46%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 2,577 $ 3,047 $ 4,815 $ 6,539 $ 7,527
Data: ======== ======== ======== ======== ========
Portfolio turnover .00% 43.29% 9.12% 61.45% 41.07%
======== ======== ======== ======== ========
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Amount is less than $.01 per share.
+++Aggregate total investment return.
See Notes to Financial Statements.
Merrill Lynch Arkansas Municipal Bond Fund
January 31, 2001
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
Class C
For the
Six
Months
The following per share data and ratios have been derived Ended
from information provided in the financial statements. Jan. 31, For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 2001 2000 1999 1998 1997
Per Share Net asset value, beginning of period $ 10.24 $ 10.39 $ 10.69 $ 10.72 $ 10.34
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .12 .31 .36 .41 .46
Realized and unrealized gain (loss) on
investments--net .36 (.10) (.27) .03 .38
-------- -------- -------- -------- --------
Total from investment operations .48 .21 .09 .44 .84
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.12) (.31) (.36) (.41) (.46)
Realized gain on investments--net (.12) (.04) --++ (.04) --
In excess of realized gain on
investments--net -- (.01) (.03) (.02) --
-------- -------- -------- -------- --------
Total dividends and distributions (.24) (.36) (.39) (.47) (.46)
-------- -------- -------- -------- --------
Net asset value, end of period $ 10.48 $ 10.24 $ 10.39 $ 10.69 $ 10.72
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 4.66%+++ 2.16% .81% 4.16% 8.29%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 3.59%* 2.94% 2.23% 1.80% 1.44%
Net Assets: ======== ======== ======== ======== ========
Expenses 4.04%* 3.39% 2.68% 2.25% 2.51%
======== ======== ======== ======== ========
Investment income--net 2.21%* 3.05% 3.40% 3.79% 4.36%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 861 $ 825 $ 981 $ 1,202 $ 843
Data: ======== ======== ======== ======== ========
Portfolio turnover .00% 43.29% 9.12% 61.45% 41.07%
======== ======== ======== ======== ========
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Amount is less than $.01 per share.
+++Aggregate total investment return.
See Notes to Financial Statements.
Merrill Lynch Arkansas Municipal Bond Fund
January 31, 2001
FINANCIAL INFORMATION (concluded)
Financial Highlights (concluded)
Class D
For the
Six
Months
The following per share data and ratios have been derived Ended
from information provided in the financial statements. Jan. 31, For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 2001 2000 1999 1998 1997
Per Share Net asset value, beginning of period $ 10.23 $ 10.39 $ 10.69 $ 10.71 $ 10.34
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .15 .36 .42 .46 .51
Realized and unrealized gain (loss) on
investments--net .37 (.11) (.27) .04 .37
-------- -------- -------- -------- --------
Total from investment operations .52 .25 .15 .50 .88
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.15) (.36) (.42) (.46) (.51)
Realized gain on investments--net (.12) (.04) --++ (.04) --
In excess of realized gain on
investments--net -- (.01) (.03) (.02) --
-------- -------- -------- -------- --------
Total dividends and distributions (.27) (.41) (.45) (.52) (.51)
-------- -------- -------- -------- --------
Net asset value, end of period $ 10.48 $ 10.23 $ 10.39 $ 10.69 $ 10.71
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 5.03%+++ 2.58% 1.32% 4.79% 8.73%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 3.05%* 2.41% 1.73% 1.29% .92%
Net Assets: ======== ======== ======== ======== ========
Expenses 3.50%* 2.86% 2.18% 1.74% 2.03%
======== ======== ======== ======== ========
Investment income--net 2.77%* 3.57% 3.90% 4.29% 4.87%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 362 $ 515 $ 971 $ 1,162 $ 1,027
Data: ======== ======== ======== ======== ========
Portfolio turnover .00% 43.29% 9.12% 61.45% 41.07%
======== ======== ======== ======== ========
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Amount is less than $.01 per share.
+++Aggregate total investment return.
See Notes to Financial Statements.
Merrill Lynch Arkansas Municipal Bond Fund
January 31, 2001
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
conformity with accounting principles generally accepted in the United States
of America, 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
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 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.
Merrill Lynch Arkansas Municipal Bond Fund
January 31, 2001
(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. The Fund
will adopt the provisions of the AICPA Audit and Accounting Guide for
Investment Companies, as revised, effective for fiscal years beginning after
December 15, 2000. As required, the Fund will amortize premiums and discounts
on debt securities under a different method effective August 1, 2001. The
cumulative effect of this accounting change will have no impact on the total
net assets of the Fund. The impact of this accounting change has not been
determined, but will result in an adjustment to cost of securities and a
corresponding adjustment in net unrealized appreciation/depreciation, based on
securities held as of July 31, 2001.
(e) Prepaid registration fees--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.
(g) Expenses--Certain expenses have been allocated to the individual Funds in
the Trust on a pro rata basis based upon the respective aggregate net asset
value of each Fund included in the Trust.
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.
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, 2001, FAM earned
fees of $15,373, of which $12,578 was 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, 2001, FAMD earned underwriting discounts
and MLPF&S earned dealer concessions on sales of the Fund's Class D Shares as
follows:
MLFD MLPF&S
Class D $5 $68
For the six months ended January 31, 2001, MLPF&S received contingent deferred
sales charges of $206 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.
Merrill Lynch Arkansas Municipal Bond Fund
January 31, 2001
NOTES TO FINANCIAL STATEMENTS (concluded)
Accounting services were provided to the Fund by FAM through December 31,
2000. Up to this date, the Fund reimbursed FAM $16,362 for these services. As
of January 1, 2001, accounting services are provided for the Fund by State
Street Bank and Trust Company ("State Street") pursuant to an agreement
between State Street and the Fund. The Fund will pay the cost of these
services. In addition, the Fund will reimburse FAM for the cost of certain
additional accounting services.
Certain officers and/or trustees of the Fund are officers and/or directors of
FAM, PSI, FDS, FAMD, and/or ML & Co.
3. Investments:
Sales of investments, excluding short-term securities, for the six months
ended January 31, 2001 were $1,037,661.
Net realized gains for the six months ended January 31, 2001 and net
unrealized gains as of January 31, 2001 were as follows:
Realized Unrealized
Gains Gains
Long-term investments $29,061 $427,731
------- --------
Total $29,061 $427,731
======= ========
As of January 31, 2001, net unrealized appreciation for Federal income tax
purposes aggregated $427,731, all of which related to appreciated securities.
The aggregate cost of investments at January 31, 2001 for Federal income tax
purposes was $4,570,827.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest transactions was
$1,084,249 and $3,041,477 for the six months ended January 31, 2001 and for
the year ended July 31, 2000, respectively.
Transactions in shares of beneficial interest for each class were as follows:
Class A Shares for the Six Months Dollar
Ended January 31, 2001 Shares Amount
Shares sold 2,981 $ 30,876
Shares issued to shareholders
in reinvestment of dividends
and distributions 2,128 22,103
----------- -----------
Total issued 5,109 52,979
Shares redeemed (44,085) (455,126)
----------- -----------
Net decrease (38,976) $ (402,147)
=========== ===========
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 B Shares for the Six Months Dollar
Ended January 31, 2001 Shares Amount
Shares sold 9,644 $ 99,527
Shares issued to shareholders
in reinvestment of dividends
and distributions 1,782 18,524
----------- -----------
Total issued 11,426 118,051
Shares redeemed (63,357) (653,539)
----------- -----------
Net decrease (51,931) $ (535,488)
=========== ===========
Merrill Lynch Arkansas Municipal Bond Fund
January 31, 2001
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 C Shares for the Six Months Dollar
Ended January 31, 2001 Shares Amount
Shares issued to shareholders
in reinvestment of dividends
and distributions 1,709 $ 17,785
Shares redeemed (104) (1,097)
----------- -----------
Net increase 1,605 $ 16,688
=========== ===========
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 D Shares for the Six Months Dollar
Ended January 31, 2001 Shares Amount
Shares sold 167 $ 1,728
Shares issued to shareholders
in reinvestment of dividends
and distributions 278 2,878
----------- -----------
Total issued 445 4,606
Shares redeemed (16,242) (167,908)
----------- -----------
Net decrease (15,797) $ (163,302)
=========== ===========
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)
=========== ===========
5. Short-Term Borrowings:
On December 1, 2000, the Fund, along with certain other funds managed by FAM
and its affiliates, renewed and amended a $1,000,000,000 credit agreement with
Bank One, N.A. and certain other lenders. The Fund may borrow under the credit
agreement to fund shareholder redemptions and for other lawful purposes other
than for leverage. The 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 Fund
pays a commitment fee of .09% per annum based on the Fund's pro rata share of
the unused portion of the facility. Amounts borrowed under the facility bear
interest at a rate equal to, at each fund's election, the Federal Funds rate
plus .50% or a base rate as determined by Bank One, N.A. The Fund did not
borrow under the facility during the six months ended January 31, 2001.
Merrill Lynch Arkansas Municipal Bond Fund
January 31, 2001
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
Roberta Cooper Ramo, Trustee
Vincent R. Giordano, Senior Vice President
Kenneth A. Jacob, Vice President
Robert D. Sneeden, 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
Arthur Zeikel, Trustee of Merrill Lynch Arkansas Municipal Bond Fund, has
recently retired. The Fund's Board of Trustees wishes Mr. Zeikel well in his
retirement.