Merrill Lynch Michigan Municipal Bond Fund
Quarterly Report -- April 30, 1994
To Our Shareholders:
The magnitude of the rise in tax-exempt bond yields experienced this
past quarter has not been seen since 1987 when municipal bond
rates rose 250 basis points (2.50%) from March to October of that
year. It is very important to note that the municipal bond price
declines of the April quarter, while certainly damaging, were
essentially much different than those in 1987. Recent price declines
were largely the result of consistent and insistent selling pressures
over the last two months. In 1987, the tax-exempt bond market was
much more volatile and, at times, chaotic as investors sought to
liquidate positions without concern for fundamental value. For the
most part, the recent price deterioration has been orderly, and the
municipal bond market's liquidity and integrity have not been
challenged or jeopardized.
Portfolio Strategy
We remain constructive on the municipal bond market and still
believe tax-exempt bond yields will eventually decline by late 1994
and into 1995. However, the volatility the tax-exempt bond market
has exhibited in recent months is expected to continue into mid-
year. This has led the Fund to a more defensive position during
March and April. This defensive posture will be maintained until
either the Federal Reserve Board concludes its current round of
interest rate increases or until there are consistent indications
that recent interest rate increases have had a negative impact on
economic growth. It is likely that until either of these two
conditions are met, the financial markets' current uncertainty will
continue, and interest rates will remain volatile.
<PAGE>
We raised the Fund's cash reserve position to approximately 10% of
net assets. Our defensive position has two principal benefits.
First, additional capital depreciation as a result of rising
interest rates will be limited to some degree. Second, this
increased liquidity will enable us to respond more quickly to
attractive market opportunities, which recent periods of volatility
have presented. These episodes of market uncertainty have allowed
us to add very attractively priced larger-couponed, noncallable
issues to its holdings. These issues should enhance the Fund's level
of tax-exempt income well into the next decade.
Additionally, Michigan municipalities have issued over $34 billion
in long-term securities over the last six months. This issuance
represents an increase of over 15% from the comparable period a year
ago. National issuance has declined by approximately 20% during the
last six months. Consequently, Michigan municipal bonds have been
relatively abundant in recent months and remain so. The availability
of Michigan tax-exempt bonds has allowed us to raise its cash
reserve position without concern of being unable to purchase
securities when a more aggressive investment strategy becomes
warranted.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Vice President and Portfolio Manager
May 25, 1994
<PAGE>
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.
<TABLE>
Recent Performance Results*
<CAPTION>
12 Month 3 Month
4/30/94 1/31/94 4/30/93 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares $9.71 $10.65 $10.18 -4.62% -8.83%
Class B Shares 9.71 10.65 10.18 -4.62 -8.83
Class A Shares--Total Return +0.98(1) -7.62(2)
Class B Shares--Total Return +0.47(3) -7.74(4)
Class A Shares--Standardized 30-day Yield 5.31%
Class B Shares--Standardized 30-day Yield 5.03%
<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 $0.590 per share ordinary income dividends.
(2)Percent change includes reinvestment of $0.131 per share ordinary income dividends.
(3)Percent change includes reinvestment of $0.538 per share ordinary income dividends.
(4)Percent change includes reinvestment of $0.118 per share ordinary income dividends.
</TABLE>
<PAGE>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 3/31/94 +1.88% -2.20%
Inception (1/29/93)
through 3/31/94 +2.77 -0.77
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 3/31/94 +1.37% -2.47%
Inception (1/29/93)
through 3/31/94 +2.26 -0.21
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced
to 0% after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
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.
