MERRILL
LYNCH
MICHIGAN
MUNICIPAL
BOND FUND
Annual Report July 31, 1994
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 per-
formance. Investment return and principal value of
shares will fluctuate so that shares, when redeemed,
may be worth more or less than their original cost.
Merrill Lynch Michigan
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, New Jersey
08543-9011
<PAGE>
TO OUR SHAREHOLDERS
Long-term tax-exempt bond yields ended the July quarter essentially
unchanged. The Bond Buyer Revenue Bond Index rose five basis points
(0.05%) to 6.47%. The Index, however, failed to capture the dramatic
bond rally on July 29, 1994, when municipal bond yields had their
largest one-day decline thus far this year. Responding to reports of
a continued mild inflationary outlook and a potentially weakening
economy, municipal bond yields declined by approximately 10 basis
points. US Treasury bonds displayed a similar pattern over the last
three months, ending with an equally dramatic rally on July 29,
1994. Long-term US Treasury bonds ended the quarter yielding
approximately 7.40%.
The tax-exempt bond market has continued to be very volatile with
yields fluctuating by as much as 15 basis points from week to week.
This continued volatility is largely a reflection of the same lack
of conviction regarding the near-term direction of interest rates
that has prevailed for much of 1994. Throughout this past quarter,
the municipal bond market had been unable to maintain a consensus
regarding either the potential strength of the current economic
recovery or the resultant response by the Federal Reserve Board.
However, a number of economic indicators released in late July began
to suggest that the robust pace of recent economic growth was
slowing. This promoted a more positive market environment,
culminating in the market rally on July 29.
The municipal bond market's technical position has remained
supportive. Approximately $40 billion in long-term securities were
issued during the three months ended July 31, 1994. This represents
a decline of over 50% versus the July quarter from the previous
year. As discussed in earlier reports, this reduction in new-issue
supply has minimized the selling pressure by larger institutional
investors who fear being unable to purchase sizable amounts of
securities in the future. Such a significant decline in issuance
would normally be expected to trigger a decline in yields as
investors chase a commodity in scarce supply. Investor demand,
however, has also diminished somewhat in recent months as net flows
into long-term municipal bond funds have dramatically slowed or, in
some instances, reversed. Consequently, the supply/demand
relationship within the municipal bond market has remained in
balance, promoting the overall stability in yield levels seen in the
past months.
<PAGE>
With after-tax equivalents in excess of 10%, long-term tax-exempt
bonds continue to represent considerable value relative to other
investment alternatives. We continue to anticipate that municipal
bond yields will decline further in late 1994 and into 1995. The
economic impact of the significant interest rate increases
experienced since early February have yet to be totally realized.
The resultant drag on the economy should provide the foundation for
further interest rate declines. Under such a scenario, current tax-
exempt bond yields may prove to represent considerable value.
Fiscal Year In Review
The municipal bond market's performance over the past 12 months can
be best divided into two periods, separated by the first Federal
Reserve Board tightening move in early February 1994. The tax-exempt
bond market performed well from August 1993 through early February
1994. The Bond Buyer Revenue Bond Index declined from approximately
5.80% in August to a low of 5.41% in mid-October before rising
slightly to 5.50% in late January 1994. After the initial Federal
Reserve Board move in February, municipal bond yields quickly rose
in anticipation of additional tightenings. By early March, long-term
municipal bond yields had risen to 6.07%. Further Federal Reserve
Board moves and a strengthening economy combined to push tax-exempt
yields to a 12-month high of 6.60% by mid-May. As evidence of a
weakening economy accumulated, yields declined somewhat for the
remainder of the fiscal year with the Bond Buyer Revenue Bond Index
yielding approximately 6.45% at the end of July.
The performance of Merrill Lynch Michigan Municipal Bond Fund over
the last year can also be divided into the same two periods. From
August 1993 to early February 1994, the Fund was aggressively
positioned toward the market, with minimal cash reserves. This
strategy resulted in a satisfactory total return performance by the
Fund as portfolio composition and structure were well designed to
take advantage of declining interest rates. In February and early
March, this aggressive strategy was ill-suited for the dramatic and
rapid increase in interest rates after the Federal Reserve Board's
initial interest rate increase. While the increase in the US
economic expansion had been largely anticipated, and as long as
inflationary pressures were not significant, we believed the
dramatic decline in Michigan tax-exempt issuance would insulate the
Fund from most, if any, interest rate increases.
Significant inflationary pressures have yet to be realized, with
annual estimates of inflation only in the 3%--4% range. More
importantly, Michigan tax-exempt issuance has declined even more
than anticipated. For the last six months, less than $2 billion in
securities have been issued by Michigan municipalities. This
represents a decline of almost 35% versus the comparable period a
year ago. More dramatically, over the last three months, only $560
million in Michigan securities have been issued, representing over a
60% reduction in supply. Despite this reduced supply, and without
significant inflationary pressures, the increase in tax-exempt
yields was far greater than expected, and the total returns of the
Fund's Class A and Class B Shares declined accordingly.
<PAGE>
In March and early April, as it became apparent that the Federal
Reserve Board was committed to further increases in interest rates
to prevent the creation of any inflationary pressures in the
economy, the Fund was restructured. Cash reserves were raised to the
7.50%--10% range of net assets, and the Fund's position in more
interest rate-sensitive issues was reduced. Greater emphasis was
placed on higher-coupon, more defensive-oriented issues. We have maintained
this strategy throughout July. Consequently, the current yield was
enhanced, and the Fund has been less vulnerable to interest rate
volatility. This resulted in an appreciably better total return
performance, particularly during the last three months of the Fund's
fiscal year.
Looking forward, we expect to maintain the current strategy until
signs that the current economic expansion is slowing become more
pronounced and until we no longer anticipate further increases by
the Federal Reserve Board. The Fund's current composition and
structure should allow it to recapture much, if not all, of its
capital depreciation if tax-exempt interest rates decline further in
1994 and 1995. However, the Fund's restructuring this past March
should limit any significant capital depreciation in response to
further interest rate volatility. The increased current yield gained
during the restructuring is likely to continue to augment the Fund's
dividend well into the next decade.
In Conclusion
We appreciate your ongoing interest in Merrill Lynch Michigan
Municipal Bond Fund, and we look forward to assisting you with your
financial needs in the months and years ahead.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Vice President and Portfolio Manager
August 26, 1994
<PAGE>
IMPORTANT TAX INFORMATION
All of the net investment income distributions paid monthly by
Merrill Lynch Michigan Municipal Bond Fund during its taxable year
ended July 31, 1994 qualify as tax-exempt interest dividends for
Federal income tax purposes.
Additionally, the Fund distributed short-term capital gains of
$.053962 per share to shareholders of record on December 22, 1993.
There were no long-term capital gains distributed during the year.
Please retain this information for your records.
PERFORMANCE DATA
None of the past results shown should be considered a representation
of future performance. Investment return and principal value of
Class A and Class B Shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Average Annual Total Return--Class A Shares*
% Return Without % Return With
Sales Charge Sales Charge**
Year Ended 6/30/94 -1.20% -5.15%
Inception (1/29/93)
through 6/30/94 +3.17 +0.24
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
GRAPHIC MATERIAL APPEARS HERE. SEE APPENDIX,
GRAPHIC AND IMAGE MATERIAL, Item 1.
Average Annual Total Return--Class B Shares*
% Return % Return
Without CDSC With CDSC**
Year Ended 6/30/94 -1.69% -5.41%
Inception (1/29/93)
through 6/30/94 +2.66 +0.63
<PAGE>
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced
to 0% after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
GRAPHIC MATERIAL APPEARS HERE. SEE APPENDIX,
GRAPHIC AND IMAGE MATERIAL, Item 2.
PERFORMANCE DATA (concluded)
<TABLE>
Recent Performance Results*
<CAPTION>
12 Month 3 Month
7/31/94 4/30/94 7/31/93 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares $9.84 $9.71 $10.29 -4.37% +1.34%
Class B Shares 9.84 9.71 10.29 -4.37 +1.34
Class A Shares--Total Return +1.22(1) +2.69(2)
Class B Shares--Total Return +0.71(3) +2.56(4)
Class A Shares--Standardized 30-day Yield 5.22%
Class B Shares--Standardized 30-day Yield 4.93%
<FN>
*Investment results shown for the 3-month and 12-month periods are
before the deduction of any sales charges.
(1)Percent change includes reinvestment of $0.582 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.130 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.531 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.118 per share ordinary
income dividends.
</TABLE>
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
1/29/93--12/31/93 $10.00 $10.52 -- $0.545 +10.87%
1/1/94--7/31/94 10.52 9.84 -- 0.293 - 3.58
------
Total $0.838
Cumulative total return as of 7/31/94: + 6.90%**
<PAGE>
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date, and do not
include sales charge; results would be lower if sales charge was
included.
</TABLE>
<TABLE>
Performance Summary--Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
1/29/93--12/31/93 $10.00 $10.53 -- $0.497 +10.46
1/1/94--7/31/94 10.53 9.84 -- 0.264 - 3.95
------
Total $0.761
Cumulative total return as of 7/31/94: + 6.10%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
PORTFOLIO ABBREVIATIONS
To simplify the listings of Merrill Lynch Michigan 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)
PCR Pollution Control Revenue Bonds
S/F Single Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Michigan--93.7%
<S> <S> <C> <S> <C>
AAA Aaa $2,000 Central Michigan University, Revenue Refunding Bonds, 5.50% due 10/01/2010 (d) $ 1,909
NR P1 300 Delta County, Michigan, Economic Development Corp., Environmental Impact
Revenue Bonds (Mead Escambia Paper), Series C, VRDN, 2.75% due 12/01/2023 (a) 300
A1 NR 1,100 Detroit, Michigan, Tax Increment Finance Authority Revenue Bonds (Central
Industrial Park Project), VRDN, 2.85% due 10/01/2010 (a) 1,100
BBB Baa1 3,500 Dickinson County, Michigan, Economic Development Corp., PCR, Refunding (Champion
International Corp.), 5.85% due 10/01/2018 3,112
BBB Baa1 1,960 Dickinson County, Michigan, Economic Development Corp., Solid Waste Disposal
Revenue Refunding Bonds (Champion International Corp.), 6.55% due 3/01/2007 1,984
AA- A1 1,500 Grand Rapids, Michigan, Sanitary Sewer System Improvement Revenue Bonds, 6% due
1/01/2022 1,432
A1+ VMIG1 800 Grand Rapids, Michigan, Water Supply System, Revenue Refunding Bonds, VRDN,
2.90% due 1/01/2020 (a)(c) 800
AAA Aaa 1,500 Grand Traverse County, Michigan, Hospital Finance Authority, Hospital Revenue
Refunding Bonds (Munson Healthcare), Series A, 6.25% due 7/01/2022 (d) 1,506
AA- A1 985 Kalamazoo, Michigan, Building Authority Revenue Bonds, Series A, 5.90% due
10/01/2017 954
Kalamazoo, Michigan, Hospital Finance Authority, Hospital Facility Revenue
Bonds (Borgess Medical Center) (c):
AAA Aaa 1,000 7.10% due 1/01/1996 (e) 1,059
AAA Aaa 3,000 Refunding, Series A, 6.25% due 6/01/2014 3,090
A+ A1 2,000 Kalamazoo, Michigan, Hospital Finance Authority, Hospital Facility Revenue
Refunding and Improvement Bonds (Bronson Methodist), Series A, 6.375% due
5/15/2017 1,961
A+ A1 1,000 Kent Hospital Finance Authority, Michigan, Hospital Facility Revenue Refunding
Bonds (Butterworth Hospital), Series A, 5.375% due 1/15/2019 866
<PAGE>
BBB NR 2,000 LaPeer, Michigan, Economic Development Corp., Limited Obligation Revenue Bonds
(LaPeer Health Services Project), 8.50% due 2/01/2000 (e) 2,360
Michigan Higher Education Student Loan Authority Revenue Bonds, AMT, VRDN
(a)(d):
A1+ VMIG1 800 Refunding, Series XII-B, 2.90% due 10/01/2013 800
A1 VMIG1 300 Series XII-D, 2.90% due 10/01/2015 300
AAA Aaa 1,000 Michigan Mu nicipal Bond Authority Revenue Bonds (Local Government Loan
Project D--Marquette Building), Series D, 6.75% due 5/01/2021 (d) 1,048
Michigan Municipal Bond Authority Revenue Bonds (State Revolving Fund):
AA Aa 2,750 5.40% due 10/01/2014 2,507
AA Aa 1,000 Series A, 6.55% due 10/01/2013 1,031
Michigan Public Power Agency, Revenue Refunding Bonds (Belle River
Project):
AA- A1 1,500 Series A, 5.25% due 1/01/2018 1,322
AA- A1 3,050 Series B, 5% due 1/01/2019 2,569
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Michigan (concluded)
<S> <S> <C> <S> <C>
Michigan State Building Authority Revenue Bonds:
AA- A $2,500 Refunding, Series I, 6.75% due 10/01/2011 $ 2,638
AA- A 1,330 Series II, 6.25% due 10/01/2020 1,330
Michigan State Hospital Finance Authority, Revenue Refunding Bonds:
A- A 1,250 (Detroit Medical Center-Obligation Group), Series A, 6.50% due 8/15/2018 1,231
AAA Aaa 500 (Henry Ford Health Systems), 6% due 9/01/2011 (d) 503
AA Aa 3,000 (Henry Ford Health Systems), 5.75% due 9/01/2017 2,759
AAA Aaa 2,500 Michigan State Housing Development Authority, Rental Housing Revenue
Refunding Bonds, Series A, 5.875% due 10/01/2017 (d) 2,354
AA NR 2,440 Michigan State Housing Development Authority, S/F Mortgage Revenue Bonds,
Series A, 6.50% due 12/01/2017 2,442
Michigan State Strategic Fund, Limited Obligation Revenue Bonds:
NR P1 100 (Dow Chemical Company Project), VRDN, AMT, 3.15% due 12/01/2014 (a) 100
AAA Aaa 2,000 Refunding (Detroit Edison Co.), Series BB, 7% due 5/01/2021 (d) 2,259
A A2 1,250 Refunding (Ford Motor Company Project), Series A, 7.10% due 2/01/2006 1,371
AA- A1 1,000 (Waste Management, Inc. Project), AMT, 6.625% due 12/01/2012 1,014
<PAGE>
Michigan State Trunk Line Bonds, Series A:
AAA NR 1,500 7% due 8/15/l999 (e) 1,662
AA- A1 1,375 5.625% due 11/15/2013 1,303
AAA Aaa 1,000 5.75% due 11/15/2020 (c) 949
AA- A1 1,500 Michigan State University, General Revenue Refunding Bonds, Series A, 6%
due 8/15/2016 1,480
Midland County, Michigan, Economic Development Corp., Limited Obligation
Revenue Bonds (Dow Chemical Co. Project), VRDN (a):
A1 P1 300 AMT, Series A, 3.15% due 12/01/2023 300
A P1 900 Refunding, Series B, 3% due 12/01/2015 900
AAA Aaa 2,070 Monroe County, Michigan, PCR (Detroit Edison Co.), AMT, Collateral, Series
CC, 6.55% due 6/01/2024 (b) 2,128
AAA Aaa 1,000 Port Huron, Michigan, Area School District Refunding Bonds, UT, 6% due
5/01/2012 (d) 998
Romulus, Michigan, Community Schools Refunding Bonds, UT (c):
AAA Aaa 1,690 5.82% due 5/01/2018 (f) 375
AAA Aaa 2,500 5.75% due 5/01/2022 2,374
NR A 1,775 Saginaw-Midland, Michigan, Municipal Water Supply Corp. Revenue Bonds, 5.50%
due 9/01/2012 1,657
AAA Aaa 1,000 Saint Clair County, Michigan, Economic Development Corp., PCR, Refunding
(Detroit Edison), Collateral, Series AA, 6.40% due 8/01/2024 (d) 1,027
AA+ Aa1 1,790 University of Michigan, University Revenue Refunding Bonds (Student Fee),
5.50% due 4/01/2011 1,693
AAA Aaa 1,500 Western Michigan University Revenue Bonds, 6.125% due 11/15/2022 (c) 1,508
AA A1 1,100 Wyoming, Michigan, Public Schools Refunding Bonds, 5.90% due 5/01/2022 1,055
Total Investments (Cost--$71,362)--93.7% 69,420
Other Assets Less Liabilities--6.3% 4,692
-------
Net Assets--100.0% $74,112
=======
<PAGE>
<FN>
(a)The interest rates are subject to change periodically based upon
the prevailing market rate. The interest rate shown is the rate
in effect at July 31, 1994.
(b)MBIA Insured.
(c)FGIC Insured.
(d)AMBAC Insured.
(e)Prerefunded.
(f)Represents the yield to maturity on this zero coupon issue.
NR--Not Rated.
Ratings of issues shown have not been audited by Deloitte &
Touche LLP.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of July 31, 1994
<CAPTION>
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$71,362,082) (Note 1a) $69,419,866
Cash 46,646
Receivables:
Securities sold $ 3,591,828
Interest 1,166,295
Beneficial interest sold 278,904
Investment adviser (Note 2) 102,130 5,139,157
-----------
Deferred organization expenses (Note 1e) 34,779
Prepaid registration fees and other assets (Note 1e) 14,935
-----------
Total assets 74,655,383
-----------
Liabilities: Payables:
Beneficial interest redeemed 370,285
Dividends to shareholders (Note 1f) 60,179
Distributor (Note 2) 24,487 454,951
-----------
Accrued expenses and other liabilities 87,987
-----------
Total liabilities 542,938
-----------
Net Assets: Net assets $74,112,445
===========
<PAGE>
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited number
Consist of: of shares authorized $ 153,107
Class B Shares of beneficial interest, $.10 par value, unlimited number
of shares authorized 600,167
Paid-in capital in excess of par 75,992,983
Accumulated realized capital losses--net (329,184)
Accumulated distributions in excess of realized capital gains--net (362,412)
Unrealized depreciation on investments--net (1,942,216)
-----------
Net assets $74,112,445
===========
Net Asset Class A--Based on net assets of $15,063,621 and 1,531,073 shares of
Value: beneficial interest outstanding $ 9.84
===========
Class B--Based on net assets of $59,048,824 and 6,001,670 shares of
beneficial interest outstanding $ 9.84
===========
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the
Year Ended
July 31, 1994
<S> <S> <C>
Investment Interest and amortization of premium and discount earned $ 3,826,376
Income
(Note 1d):
<PAGE>
Expenses: Investment advisory fees (Note 2) 383,179
Distribution fees--Class B (Note 2) 273,240
Printing and shareholder reports 115,402
Professional fees 55,277
Accounting services (Note 2) 45,746
Transfer agent fees--Class B (Note 2) 34,081
Registration fees (Note 1e) 26,203
Custodian fees 13,108
Amortization of organization expenses (Note 1e) 9,949
Transfer agent fees--Class A (Note 2) 8,047
Pricing fees 6,000
Trustees' fees and expenses 2,511
Other 2,826
-----------
Total expenses before reimbursement 975,569
Reimbursement of expenses (Note 2) (485,309)
-----------
Total expenses after reimbursement 490,260
-----------
Investment income--net 3,336,116
-----------
Realized & Realized loss on investments--net (384,083)
Unrealized Change in unrealized appreciation/depreciation on investments--net (2,943,329)
Loss on -----------
Investments Net Increase in Net Assets Resulting from Operations $ 8,704
- --Net (Notes ===========
1d & 3):
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<PAGE>
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the For the Period
Year Ended Jan. 29, 1993++
Increase (Decrease) in Net Assets: July 31, 1994 to July 31, 1993
<S> <S> <C> <C>
Operations: Investment income--net $ 3,336,116 $ 1,120,889
Realized gain (loss) on investments--net (384,083) 54,899
Change in unrealized appreciated/depreciation on investments--net (2,943,329) 1,001,113
----------- -----------
Net increase in net assets resulting from operations 8,704 2,176,901
----------- -----------
Dividends & Investment income--net:
Distribu- Class A (778,283) (290,870)
tions to Class B (2,557,833) (830,019)
Shareholders In excess of realized gain on investments--net:
(Note 1f): Class A (77,279) --
Class B 285,133) --
----------- -----------
Net decrease in net assets resulting from dividends and distributions
to shareholders (3,698,528) (1,120,889)
=========== ===========
Beneficial Net increase in net assets derived from beneficial interest
Interest transactions 19,833,944 56,812,313
Transactions ----------- -----------
(Note 4):
Net Assets: Total increase in net assets 16,144,120 57,868,325
Beginning of period 57,968,325 100,000
----------- -----------
End of period $74,112,445 $57,968,325
=========== ===========
<FN>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<PAGE>
<TABLE>
Financial Highlights
<CAPTION>
Class A
For the
Period
The following per share data and ratios have been derived For the January 29,
from information provided in the financial statements. Year Ended 1993++
July 31, to July 31,
Increase (Decrease) in Net Asset Value: 1994 1993
<S> <S> <C> <C>
Per Share Net asset value, beginning of period $ 10.29 $ 10.00
Operating ----------- -----------
Performance: Investment income--net .53 .26
Realized and unrealized gain (loss) on investments--net (.40) .29
----------- -----------
Total from investment operations .13 .55
----------- -----------
Less dividends and distributions:
Investment income--net (.53) (.26)
In excess of realized gain on investments--net (.05) --
---------- -----------
Total dividends and distributions (.58) (.26)
----------- -----------
Net asset value, end of period $ 9.84 $ 10.29
=========== ===========
Total Based on net asset value per share 1.22% 5.61%+++
Investment =========== ===========
Return:**
Ratios to Expenses, net of reimbursement .31% .08%*
Average =========== ===========
Net Assets: Expenses 1.00% 1.02%*
=========== ===========
Investment income--net 5.18% 5.20%*
=========== ===========
Supplemental Net assets, end of period (in thousands) $ 15,064 $ 13,276
Data: =========== ===========
Portfolio turnover 71.70% 31.23%
=========== ===========
<PAGE>
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class B
For the
Period
The following per share data and ratios have been derived For the January 29,
from information provided in the financial statements. Year Ended 1993++
July 31, to July 31,
Increase (Decrease) in Net Asset Value: 1994 1993
<S> <S> <C> <C>
Per Share Net asset value, beginning of period $ 10.29 $ 10.00
Operating ----------- -----------
Performance: Investment income--net .48 .24
Realized and unrealized gain (loss) on investments--net (.40) .29
----------- -----------
Total from investment operations .08 .53
----------- -----------
Less dividends and distributions:
Investment income--net (.48) (.24)
In excess of realized gain on investments--net (.05) --
----------- -----------
Total dividends and distributions (.53) (.24)
----------- -----------
Net asset value, end of period $ 9.84 $ 10.29
=========== ===========
Total Based on net asset value per share 0.71% 5.35%+++
Investment =========== ===========
Return:**
<PAGE>
Ratios to Expenses, excluding distribution fees and net of reimbursement .31% .08%*
Average =========== ===========
Net Assets: Expenses, net of reimbursement .81% .58%*
=========== ===========
Expenses 1.51% 1.53%*
=========== ===========
Investment income--net 4.68% 4.71%*
=========== ===========
Supplemental Net assets, end of period (in thousands) $ 59,049 $ 44,692
Data: =========== ===========
Portfolio turnover 71.70% 31.23%
=========== ===========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Michigan Municipal Bond Fund (the "Fund") is part of
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 offers
both Class A and Class B Shares. Class A Shares are sold with a
front-end sales charge. Class B Shares may be subject to a
contingent deferred sales charge. Both classes of shares have
identical voting, dividend, liquidation and other rights and the
same terms and conditions, except that Class B Shares bear certain
expenses related to the distribution of such shares and have
exclusive voting rights with respect to matters relating to such
distribution expenditures. The following is a summary of significant
accounting policies followed by the Fund.
<PAGE>
(a) Valuation of investments--Municipal bonds and other portfolio
securities in which the Fund invests 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 remaining maturities of sixty days or less are
valued at amortized cost, which approximates market value. Options,
which are traded on exchanges, are valued at their last sale price
as of the close of such exchanges or, lacking any sales, at the last
available bid price. 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) Financial futures contracts--The Fund may purchase or sell
interest rate futures contracts and options on such futures
contracts for the purpose of hedging the market risk on existing 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.
<PAGE>
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income is recognized on the accrual
basis. Discounts and market premiums are amortized into interest
income. Realized gains and losses on security transactions are
determined on the identified cost basis.
(e) Deferred organization expenses and prepaid registration fees--
Deferred organization expenses are charged to expense on a straight-
line basis over a five-year period. Prepaid registration fees are
charged to expense as the related shares are issued.
(f) Dividends and distributions--Dividends from net investment
income are declared daily and paid monthly. Distributions of capital
gains are recorded on the ex-dividend dates. Distributions in excess
of realized capital gains are due primarily to differing tax treat-
ments 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"). Effective January 1, 1994, the
investment advisory business of FAM was reorganized from a
corporation to a limited partnership. Both prior to and after the
reorganization, ultimate control of FAM was vested with Merrill
Lynch & Co., Inc. ("ML & Co."). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of ML & Co. The limited partners are ML & Co. and Fund
Asset Management, Inc. ("FAMI"), which is also an indirect wholly-
owned subsidiary of ML & Co. The Fund has also entered into
Distribution Agreements and a Distribution Plan with Merrill Lynch
Funds Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Investment Management, Inc. ("MLIM"),
which is also an indirect wholly-owned subsidiary of ML & Co.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee based upon the average daily
value of the Fund's net assets at the following annual rates: 0.55%
of the Fund's average daily net assets not exceeding $500 million;
0.525% of average daily net assets in excess of $500 million but not
exceeding $1 billion; and 0.50% of average daily net assets in
excess of $1 billion. For the year ended July 31, 1994, FAM earned
fees of $383,179, all of which was voluntarily waived. FAM also
voluntarily reimbursed the Fund additional expenses of $102,130.
<PAGE>
Pursuant to a distribution plan (the "Distribution Plan") adopted by
the Fund in accordance with Rule 12b-1 under the Investment Company
Act of 1940, the Fund pays the Distributor an ongoing account
maintenance fee and distribution fee relating to Class B Shares,
which are accrued daily and paid monthly at the annual rates of
0.25% and 0.25%, respectively, of the average daily net assets of
the Class B Shares of the Fund. Pursuant to a sub-agreement with the
Distributor, Merrill Lynch, Pierce Fenner & Smith Inc. ("MLPF&S"),
an affiliate of ML & Co., also provides account maintenance and
distribution services to the Fund. The ongoing distribution and
account maintenance fees compensate the Distributor and MLPF&S
for providing distribution and account maintenance services
to Class B shareholders. As authorized by the Plan, the Distributor
has entered into an agreement with MLPF&S which provides
for the compensation of MLPF&S for providing distribution-related
services to the Fund. For the year ended July 31, 1994, MLFD earned
underwriting discounts of $7,508, and MLPF&S earned dealer con-
cessions of $50,077 on sales of the Fund's Class A Shares.
MLPF&S also received contingent deferred sales charges of $100,415
relating to Class B Share transactions during the year.
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, FAMI, MLIM, PSI, MLFD, FDS, MLPF&S, and/or ML &
Co.
NOTES TO FINANCIAL STATEMENTS (concluded)
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended July 31, 1994 were $58,733,039 and $46,397,349,
respectively.
Net realized and unrealized gains (losses) as of July 31, 1994 were
as follows:
Realized Unrealized
Gains (Losses) Losses
Long-term investments $(1,233,677) $(1,942,216)
Financial futures contracts 849,594 --
----------- -----------
Total $ (384,083) $(1,942,216)
=========== ===========
<PAGE>
As of July 31, 1994, net unrealized depreciation for Federal income
tax purposes aggregated $1,949,737, of which $369,322 related to
appreciated securities and $2,319,059 related to depreciated
securities. The aggregate cost of investments at July 31, 1994 for
Federal income tax purposes was $71,369,603.
4. Beneficial Interest Transactions:
Net increase in net assets derived from beneficial interest
transactions was $19,833,944 and $56,812,313 for the year ended July
31, 1994 and the period ended July 31, 1993.
Transactions in shares of beneficial interest for Class A and Class
B Shares were as follows:
Class A Shares for the Year Dollar
Ended July 31, 1994 Shares Amount
Shares sold 557,125 $ 5,752,822
Shares issued to shareholders
in reinvestment of dividends
and distributions 27,717 282,740
----------- -----------
Total issued 584,842 6,035,562
Shares redeemed (344,338) (3,459,479)
----------- -----------
Net increase 240,504 $ 2,576,083
=========== ===========
Class A Shares for the Period
January 29, 1993++ to Dollar
July 31, 1993 Shares Amount
Shares sold 1,318,905 $13,316,740
Shares issued to shareholders
in reinvestment of dividends 14,012 142,932
----------- -----------
Total issued 1,332,917 13,459,672
Shares redeemed (47,348) (481,138)
----------- -----------
Net increase 1,285,569 $12,978,534
=========== ===========
[FN]
++Prior to January 29, 1993 (commencement of operations), the Fund
issued 5,000 shares to FAM for $50,000.
<PAGE>
Class B Shares for the Year Dollar
Ended July 31, 1994 Shares Amount
Shares sold 2,219,800 $22,857,254
Shares issued to shareholders
in reinvestment of dividends
and distributions 73,940 764,208
----------- -----------
Total issued 2,293,740 23,621,462
Shares redeemed (636,421) (6,363,601)
----------- -----------
Net increase 1,657,319 $17,257,861
=========== ===========
Class B Shares for the Period
January 29, 1993++ to Dollar
July 31, 1993 Shares Amount
Shares sold 4,381,535 $44,258,981
Shares issued to shareholders
in reinvestment of dividends 47,013 479,835
----------- -----------
Total issued 4,428,548 44,738,816
Shares redeemed (89,197) (905,037)
----------- -----------
Net increase 4,339,351 $43,833,779
=========== ===========
[FN]
++Prior to January 29, 1993 (commencement of operations), the Fund
issued 5,000 shares to FAM for $50,000.
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
Merrill Lynch Michigan Municipal Bond Fund of Merrill Lynch Multi-
State Municipal Series Trust:
<PAGE>
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of Merrill Lynch
Michigan Municipal Bond Fund of Merrill Lynch Multi-State Municipal
Series Trust as of July 31, 1994, the related statements of
operations for the year then ended and changes in net assets for the
year then ended and for the period January 29, 1993 (commencement of
operations) to July 31, 1993, and the financial highlights for the year
then ended and for the period January 29, 1993 (commencement of
operations) to July 31, 1993. 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 generally accepted
auditing standards. 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,
1994 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 Michigan Municipal Bond Fund of Merrill Lynch Multi-
State Municipal Series Trust as of July 31, 1994, the results of its
operations, the changes in its net assets, and the financial
highlights for the respective stated periods in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
August 29, 1994
</AUDIT-REPORT>
<PAGE>
OFFICERS AND TRUSTEES
Arthur Zeikel, President and Trustee
Kenneth S. Axelson, Trustee
Herbert I. London, Trustee
Robert R. Martin, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Terry K. Glenn, Executive Vice President
Donald C. Burke, Vice President
Vincent R. Giordano, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Jerry Weiss, Secretary
Custodian
National Westminster Bank NJ
Exchange Place Centre
10 Exchange Place
Jersey City, New Jersey 07302
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
</AUDIT-REPORT>
<PAGE>
APPENDIX: GRAPHIC AND IMAGE MATERIAL.
Item 1:
Total Return Based on a $10,000 Investment--Class A Shares*
A line graph depicting the growth of an investment in the Fund's
Class A Shares compared to growth of an investment in the
Lehman Brothers Municipal Bond Index. Beginning and ending values
are:
<PAGE>
1/29/93** 7/94
ML Michigan Municipal
Bond Fund++ $ 9,600 $10,262
Lehman Brothers Municipal
Bond Index++++ $10,000 $10,799
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses including advisory fees.
**Commencement of Operations.
++ML Michigan Municipal Bond Fund invests primarily in
long-term investment-grade obligations issued by or on behalf of
the State of Michigan, 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.
<PAGE>
Item 2:
Total Return Based on a $10,000 Investment--Class B Shares*
A line graph depicting the growth of an investment in the Fund's
Class B Shares compared to growth of an investment in the
Lehman Brothers Municipal Bond Index. Beginning and ending values
are:
1/29/93** 7/94
ML Michigan Municipal
Bond Fund++ $10,000 $10,315
Lehman Brothers Municipal
Bond Index++++ $10,000 $10,799
<PAGE>
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses including advisory fees.
**Commencement of Operations.
++ML Michigan Municipal Bond Fund invests primarily in
long-term investment-grade obligations issued by or on behalf of
the State of Michigan, 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.
