MERRILL LYNCH
MICHIGAN
MUNICIPAL
BOND FUND
FUND LOGO
Annual Report
July 31, 1997
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.
<PAGE>
Merrill Lynch Michigan
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the six months ended July 31, 1997, a number of very
favorable factors combined to push both tax-exempt and taxable bond
yields to recent historic lows. A slowing domestic economy, a
continued benign, if not improving, inflationary environment, a
declining Federal budget deficit with resultant reduced Treasury
borrowing needs, and a successful Congressional budget accord all
resulted in significant declines in fixed-income yields. By the end
of July, 30-year US Treasury bond yields had declined approximately
50 basis points (0.50%) to 6.30%, their lowest level in over a year.
Similarly, as measured by the Bond Buyer Revenue Bond Index, long-
term municipal revenue bond yields fell over 50 basis points to end
the July 31, 1997 quarter at 5.49%, their lowest level since early
1994.
<PAGE>
The decline in tax-exempt yields in recent months was even more
impressive given that the municipal market lost much of the
technical support it enjoyed for over a year. In previous quarters,
new tax-exempt bond issuance declined, or remained stable. During
the six months ended July 31, 1997, approximately $100 billion in
new long-term municipal securities was underwritten, an increase of
over 7.5% versus the comparable period in 1996. As tax-exempt bond
yields declined, many municipal bond issuers took this opportunity
to both issue new debt as well as refinance older, higher-couponed
debt with new, lower-yielding issues. This refinancing led to a
surge in tax-exempt issuance in recent months. Over the three months
ended July 31, 1997, new long-term tax-exempt bond issuance totaled
approximately $55 billion, an increase of over 15% versus the July
31, 1996 quarter.
The decline in municipal bond yields also resulted in some reduction
in retail investor demand. In earlier episodes of rapidly declining
interest rates, individual investor demand initially fell until
investors became more acclimated to the current levels. Should
interest rates stabilize, we expect investor demand to return to
earlier levels. Also, this past June and July, municipal bond
investors received over $50 billion in assets from coupon income
payments, bond maturities, and the proceeds from early bond
redemptions. Despite the continued allure of the US equity market,
it is likely that much of these assets will be reallocated to the
municipal bond market as investors adjust to the new investment
environment.
Looking forward, given the extent of the recent bond market rally,
some retrenchment or at least a period of consolidation is likely.
However, the positive backdrop of modest economic growth and low
inflation suggests that any such adjustment is not likely to be
excessive. Despite recent increases in new bond issuance, supply for
all of 1997 is not expected to be materially different than earlier
estimates of approximately $175 billion. It is likely that the
recent increase in issuance has largely borrowed from that
originally scheduled for later this year. Additionally, any
significant increase in tax-exempt bond yields will prevent any
further bond refinancings, reducing future supply. Unless the
current positive economic fundamentals undergo immediate and
significant deterioration, any increase in municipal bond yields is
likely to be viewed as an opportunity to purchase more attractively
priced tax-exempt securities.
<PAGE>
Fiscal Year in Review
During the past 12 months, the municipal bond market was
characterized by tremendous price volatility within a narrow trading
range. We focused on purchasing long-term insured bonds as yields
approached 6% and selling these securities as yields rallied to
5.50%. The Fund was fully invested in long-term securities during
most of the fiscal year to seek to achieve a yield greater than that
of similar Michigan municipal bond funds. The Fund's cash equivalent
reserves fluctuated between 5%--10% of total assets, and a large
position of assets committed to longer-term maturities currently
have coupons structured for income rather than price appreciation.
Over the 12 months ended July 31, 1997, the Fund's slightly
defensive strategy, coupled with an essentially fully invested
position, generated a total return performance above the industry
average as well as an above-average yield.
Portfolio Matters
During the six months ended July 31, 1997, we maintained the
slightly defensive posture adopted in late 1996. Our principal
concern was that the strong economic growth seen in the fourth
quarter of 1996 would continue into 1997, causing the Federal
Reserve Board to raise interest rates so that growth would not
result in a significant increase in inflation. However, US economic
growth slowed in the second quarter of 1997 and inflation remained
subdued, allowing interest rates to decline. We believed the Fund's
structure would allow it to perform well during periods of market
improvement.
We generally maintained the Fund's cash reserves below 5% of net
assets in order to seek to enhance the Fund's dividend stream and in
response to the continued scarcity of attractively priced tax-exempt
Michigan issues. During the last six months, approximately $2.5
billion in Michigan municipal securities was underwritten, a decline
of over 15% as compared to the same period a year ago.
Looking forward, we expect to maintain our current strategy of
waiting for an environment characterized by higher interest rates
before adopting a more aggressive portfolio structure. In such an
environment, we expect to emphasize higher-couponed issues over more
interest rate-sensitive securities. The generation of an optimal
amount of tax-exempt income will remain the primary investment
strategy of the Fund. As new bond issuance is expected to be
approximately $175 billion on an annual basis for all of 1997, we
expect to maintain the Fund's fully invested position.
In Conclusion
We appreciate your ongoing interest in Merrill Lynch Michigan
Municipal Bond Fund, and we look forward to serving your investment
needs in the months and years to come.
Sincerely,
<PAGE>
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Fred K. Stuebe)
Fred K. Stuebe
Vice President and Portfolio Manager
September 2, 1997
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.
<PAGE>
* 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 "Average Annual Total
Return" tables as well as the total returns and cumulative total
returns in the "Performance Summary" 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.
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month
7/31/97 4/30/97 7/31/96 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $10.34 $9.97 $9.92 +4.23% +3.71%
Class B Shares* 10.34 9.97 9.92 +4.23 +3.71
Class C Shares* 10.33 9.97 9.92 +4.13 +3.61
Class D Shares* 10.33 9.97 9.91 +4.24 +3.61
Class A Shares--Total Return* +9.79(1) +5.05(2)
Class B Shares--Total Return* +9.23(3) +4.91(4)
Class C Shares--Total Return* +9.01(5) +4.78(6)
Class D Shares--Total Return* +9.69(7) +4.92(8)
Class A Shares--Standardized 30-day Yield 4.52%
Class B Shares--Standardized 30-day Yield 4.21%
Class C Shares--Standardized 30-day Yield 4.10%
Class D Shares--Standardized 30-day Yield 4.43%
<PAGE>
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
(1)Percent change includes reinvestment of $0.522 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.130 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.471 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.117 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.461 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.114 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.512 per share ordinary
income dividends.
(8)Percent change includes reinvestment of $0.127 per share ordinary
income dividends.
</TABLE>
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment--Class A Shares and Class
B Shares
A line graph depicting the growth of an investment in the Fund's
Class A Shares and Class B Shares compared to growth of an
investment in the Lehman Brothers Municipal Bond Index. Beginning
and ending values are:
1/29/93** 7/97
ML Michigan Municipal Bond Fund++--
Class A Shares* $ 9,600 $12,664
ML Michigan Municipal Bond Fund++--
Class B Shares* $10,000 $12,894
Lehman Brothers Municipal Bond Index++++ $10,000 $13,691
Total Return Based on a $10,000 Investment--Class C Shares and
Class D Shares
A line graph depicting the growth of an investment in the Fund's
Class C Shares and Class D Shares compared to growth of an
investment in the Lehman Brothers Municipal Bond Index. Beginning
and ending values are:
10/21/94** 7/97
<PAGE>
ML Michigan Municipal Bond Fund++--
Class C Shares* $10,000 $12,477
ML Michigan Municipal Bond Fund++--
Class D Shares* $ 9,600 $12,153
Lehman Brothers Municipal Bond Index++++ $10,000 $13,054
[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.
Past performance is not predictive of future performance.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/97 +8.02% +3.70%
Inception (1/29/93)
through 6/30/97 +5.83 +4.86
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/97 +7.47% +3.47%
Inception (1/29/93)
through 6/30/97 +5.30 +5.30
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
<PAGE>
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 6/30/97 +7.36% +6.36%
Inception (10/21/94)
through 6/30/97 +7.56 +7.56
[FN]
*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 6/30/97 +7.91% +3.60%
Inception (10/21/94)
through 6/30/97 +8.08 +6.46
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
PERFORMANCE DATA (concluded)
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
1/29/93-12/31/93 $10.00 $10.52 -- $0.545 +10.87%
1994 10.52 9.24 -- 0.524 - 7.29
1995 9.24 10.29 -- 0.541 +17.59
1996 10.29 10.10 -- 0.529 + 3.47
1/1/97-7/31/97 10.10 10.34 -- 0.289 + 5.50
------
Total $2.428
Cumulative total return as of 7/31/97: +31.93%**
<PAGE>
</TABLE>
<TABLE>
Performance Summary--Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change***
<S> <C> <C> <C> <C> <C>
1/29/93-12/31/93 $10.00 $10.53 -- $0.497 +10.46%
1994 10.53 9.24 -- 0.474 - 7.85
1995 9.24 10.29 -- 0.490 +16.99
1996 10.29 10.10 -- 0.477 + 2.94
1/1/97-7/31/97 10.10 10.34 -- 0.261 + 5.19
------
Total $2.199
Cumulative total return as of 7/31/97: +28.94%***
</TABLE>
<TABLE>
Performance Summary--Class C Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change***
<S> <C> <C> <C> <C> <C>
10/21/94-12/31/94 $ 9.44 $ 9.24 -- $0.090 -1.15%
1995 9.24 10.29 -- 0.479 +16.87
1996 10.29 10.10 -- 0.467 + 2.83
1/1/97-7/31/97 10.10 10.33 -- 0.255 + 5.03
------
Total $1.291
Cumulative total return as of 7/31/97: +24.77%***
</TABLE>
<TABLE>
Performance Summary--Class D Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94-12/31/94 $ 9.44 $ 9.24 -- $0.101 - 1.03%
1995 9.24 10.29 -- 0.531 +17.47
1996 10.29 10.09 -- 0.518 + 3.26
1/1/97-7/31/97 10.09 10.33 -- 0.284 + 5.44
------
Total $1.434
Cumulative total return as of 7/31/97: +26.59%**
<PAGE>
<FN>
*Figures may include short-term capital gains distributions.
**Figures do not include sales charge; results would be lower if
sales charge was included.
***Figures 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)
HDA Housing Development Authority
INFLOS Inverse Floating Rate Municipal Bonds
PCR Pollution Control Revenue Bonds
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Michigan--99.1%
<S> <S> <C> <S> <C>
AA Aa2 $ 1,000 Breitung Township, Michigan, School District, Refunding, UT, 6.30% due
5/01/2019 $ 1,081
AAA Aaa 1,000 Davison, Michigan, Community School District, UT, 5.375% due 5/01/2016 (c) 1,006
AAA Aaa 2,500 Detroit, Michigan, Sewage Disposal System Revenue Bonds, Series A, 5% due
7/01/2027 (b) 2,410
AAA Aaa 5,800 Detroit, Michigan, Water Supply System Revenue Bonds, INFLOS, 6.375% due
7/01/2022 (c)(f) 6,297
BBB Baa1 3,460 Dickinson County, Michigan, Economic Development Corp., Solid Waste
Disposal Revenue Refunding Bonds (Champion International), 6.55% due
3/01/2007 3,680
<PAGE>
Grand Ledge, Michigan, Public Schools District, UT (b):
AAA Aaa 2,500 6.60% due 5/01/2004 (e) 2,855
AAA Aaa 1,500 Refunding, 5.375% due 5/01/2024 1,503
A1+ VMIG1++ 1,300 Grand Rapids, Michigan, Water Supply System, Revenue Refunding Bonds,
VRDN, 3.55% due 1/01/2020 (a)(c) 1,300
AAA Aaa 3,000 Grand Traverse County, Michigan, Hospital Finance Authority, Hospital
Revenue Refunding Bonds (Munson Healthcare), Series A, 6.25% due
7/01/2022 (d) 3,211
AA Aa2 4,000 Haslett, Michigan, Public School District, Refunding, UT, 6.625% due
5/01/2019 4,394
AAA Aaa 2,000 Kalamazoo, Michigan, Hospital Finance Authority, Hospital Facility Revenue
Refunding and Improvement Bonds (Bronson Methodist), Series A, 6.375% due
5/15/2017 (b) 2,180
A1 VMIG1++ 500 Michigan Higher Education Student Loan Authority Revenue Bonds, VRDN, AMT,
Series XII-D, 3.70% due 10/01/2015 (a)(d) 500
AAA Aaa 1,000 Michigan Municipal Bond Authority Revenue Bonds (Local Government Loan
Program--Marquette Building), Series D, 6.75% due 5/01/2021 (d) 1,097
Michigan Municipal Bond Authority Revenue Bonds (State Revolving Fund),
Series A (e):
AA+ Aa1 1,000 6.55% due 10/01/2002 1,123
AA+ Aa1 1,500 6.60% due 10/01/2002 1,688
A+ NR* 2,000 Michigan State, HDA, Rental Housing Revenue Refunding Bonds, Series A,
6.60% due 4/01/2012 2,113
Michigan State, HDA, S/F Mortgage Revenue Bonds:
AA+ NR* 895 AMT, Series B, 7.05% due 6/01/2026 960
AA+ NR* 3,455 Refunding, AMT, Series D, 6.85% due 6/01/2026 3,677
AA+ NR* 2,150 Series A, 6.50% due 12/01/2017 2,279
AA+ NR* 2,420 Series B, 6.95% due 12/01/2020 2,562
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<PAGE>
Michigan (concluded)
<S> <S> <C> <S> <C>
Michigan State Hospital Finance Authority Revenue Bonds:
AAA Aaa $ 2,000 (Mercy Health Services), Series Q, 5.375% due 8/15/2026 (d) $ 2,004
A A2 3,500 Refunding (Detroit Medical Center Obligation Group), Series A, 6.50%
due 8/15/2018 3,789
AA- Aa3 1,330 Refunding (Mercy Health Services), Series S, 5.50% due 8/15/2020 1,338
AAA Aaa 3,000 (Saint John Hospital and Medical Center), Series A, 5.25% due 5/15/2026 (d) 2,947
Michigan State Strategic Fund, Limited Obligation Revenue Bonds:
AAA Aaa 2,000 Refunding (Detroit Edison Co. Project), 6.875% due 12/01/2021 (c) 2,226
A+ A1 1,250 Refunding (Ford Motor Co. Project), Series A, 7.10% due 2/01/2006 1,466
A- A1 1,000 (Waste Management Inc. Project), AMT, 6.625% due 12/01/2012 1,090
NR* P1 2,900 Michigan State Strategic Fund, PCR, Refunding (Consumers Power Project),
VRDN, Series A, 3.60% due 4/15/2018 (a) 2,900
NR* VMIG1++ 100 Michigan State Strategic Fund, Solid Waste Disposal Revenue Bonds
(Grayling Generating Project), VRDN, AMT, 3.70% due 1/01/2014 (a) 100
AAA Aaa 2,435 Michigan State University, General Revenue Bonds, Series A, 5% due
2/15/2026 (d) 2,356
Royal Oak, Michigan, Hospital Finance Authority Revenue Bonds:
AA- Aa3 1,785 Refunding (Beaumont Properties, Inc.), Series E, 6.625% due 1/01/2019 1,938
AA Aaa 2,000 (William Beaumont Hospital), Series D, 6.75% due 1/01/2001 (e) 2,201
AAA Aaa 2,065 Saint Clair County, Michigan, Building Authority, 5.25% due 4/01/2018 (b) 2,047
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) 1,135
AAA Aaa 1,250 School Craft, Michigan, Community School District, UT, 5.375% due
5/01/2026 (c) 1,254
AAA Aaa 2,300 Three Rivers, Michigan, Community Schools Building and Site, UT, 6% due
5/01/2023 (b) 2,469
A1+ VMIG1++ 300 University of Michigan, University Hospital Revenue Refunding Bonds, VRDN,
Series A, 3.60% due 12/01/2019 (a) 300
AAA Aaa 1,500 Western Michigan University, General Revenue Bonds, 6.125% due 11/15/2022 (c) 1,600
AAA Aaa 2,000 Ypsilanti, Michigan, School District Refunding Bonds, UT, 5.375% due
5/01/2026 (c) 2,007
Total Investments (Cost--$75,977)--99.1% 81,083
Other Assets Less Liabilities--0.9% 737
-------
Net Assets--100.0% $81,820
=======
<PAGE>
<FN>
(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, 1997.
(b)MBIA Insured.
(c)FGIC Insured.
(d)AMBAC Insured.
(e)Prerefunded.
(f)The interest rate is subject to change periodically and inversely
based upon prevailing market rates. The interest rate shown is the
rate in effect at July 31, 1997.
*Not Rated.
++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.
</TABLE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of July 31, 1997
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$75,976,873) (Note 1a) $ 81,083,109
Cash 80,319
Receivables:
Interest $ 1,027,540
Beneficial interest sold 8,023 1,035,563
------------
Deferred organization expenses (Note 1e) 4,906
Prepaid expenses and other assets 1,441
------------
Total assets 82,205,338
------------
Liabilities: Payables:
Beneficial interest redeemed 176,061
Dividends to shareholders (Note 1f) 101,567
Distributor (Note 2) 28,520
Investment adviser (Note 2) 27,488 333,636
------------
Accrued expenses and other liabilities 51,862
------------
Total liabilities 385,498
------------
<PAGE>
Net Assets: Net assets $ 81,819,840
============
Net Assets Class A Shares of beneficial interest, $.10 par value,
Consist of: unlimited number of shares authorized $ 114,559
Class B Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 630,484
Class C Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 12,764
Class D Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 33,830
Paid-in capital in excess of par 79,866,271
Accumulated realized capital losses on investments--net (Note 5) (3,915,075)
Accumulated distributions in excess of realized capital gains
--net (Note 1f) (29,229)
Unrealized appreciation on investments--net 5,106,236
------------
Net assets $ 81,819,840
============
Net Asset Value: Class A--Based on net assets of $11,840,703 and 1,145,585
shares of beneficial interest outstanding $ 10.34
============
Class B--Based on net assets of $65,165,595 and 6,304,842
shares of beneficial interest outstanding $ 10.34
============
Class C--Based on net assets of $1,319,072 and 127,635
shares of beneficial interest outstanding $ 10.33
============
Class D--Based on net assets of $3,494,470 and 338,302
shares of beneficial interest outstanding $ 10.33
============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended
July 31, 1997
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 4,837,367
(Note 1d):
<PAGE>
Expenses: Investment advisory fees (Note 2) $ 459,955
Account maintenance and distribution fees--Class B (Note 2) 338,005
Professional fees 55,180
Accounting services (Note 2) 41,680
Transfer agent fees--Class B (Note 2) 38,358
Printing and shareholder reports 26,622
Registration fees 18,217
Account maintenance and distribution fees--Class C (Note 2) 9,986
Amortization of organization expenses (Note 1e) 9,948
Pricing fees 6,907
Transfer agent fees--Class A (Note 2) 5,304
Trustees' fees and expenses 4,256
Custodian fees 3,558
Account maintenance fees--Class D (Note 2) 2,825
Transfer agent fees--Class D (Note 2) 1,297
Transfer agent fees--Class C (Note 2) 1,032
Other 3,233
------------
Total expenses before reimbursement 1,026,363
Reimbursement of expenses (Note 2) (190,673)
------------
Total expenses after reimbursement 835,690
------------
Investment income--net 4,001,677
------------
Realized & Realized gain on investments--net 333,178
Unrealized Gain on Change in unrealized appreciation on investments--net 3,032,220
Investments--Net ------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $ 7,367,075
============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended July 31,
Increase (Decrease) in Net Assets: 1997 1996
<S> <S> <C> <C>
Operations: Investment income--net $ 4,001,677 $ 3,958,994
Realized gain (loss) on investments--net 333,178 (1,097,627)
Change in unrealized appreciation on investments--net 3,032,220 1,413,924
------------ ------------
Net increase in net assets resulting from operations 7,367,075 4,275,291
------------ ------------
<PAGE>
Dividends to Investment income--net:
Shareholders Class A (601,588) (627,353)
(Note 1f): Class B (3,179,093) (3,183,853)
Class C (76,539) (66,935)
Class D (144,457) (80,853)
------------ ------------
Net decrease in net assets resulting from dividends to
shareholders (4,001,677) (3,958,994)
------------ ------------
Beneficial Interest Net increase (decrease) in net assets derived from beneficial
Transactions interest transactions (4,496,313) 8,213,020
(Note 4): ------------ ------------
Net Assets: Total increase (decrease) in net assets (1,130,915) 8,529,317
Beginning of year 82,950,755 74,421,438
------------ ------------
End of year $ 81,819,840 $ 82,950,755
============ ============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
Class A
For the
Period
The following per share data and ratios have been derived Jan. 29,
from information provided in the financial statements. 1993++ to
For the Year Ended July 31, July 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1994 1993
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.92 $ 9.85 $ 9.84 $ 10.29 $ 10.00
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .52 .54 .53 .53 .26
Realized and unrealized gain (loss) on
investments--net .42 .07 .01 (.40) .29
-------- -------- -------- -------- --------
Total from investment operations .94 .61 .54 .13 .55
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.52) (.54) (.53) (.53) (.26)
In excess of realized gain on
investments--net -- -- -- (.05) --
-------- -------- -------- -------- --------
Total dividends and distributions (.52) (.54) (.53) (.58) (.26)
-------- -------- -------- -------- --------
Net asset value, end of period $ 10.34 $ 9.92 $ 9.85 $ 9.84 $ 10.29
======== ======== ======== ======== ========
<PAGE>
Total Investment Based on net asset value per share 9.79% 6.25% 5.79% 1.22% 5.61%+++
Return:** ======== ======== ======== ======== ========
Ratios to Expenses, net of reimbursement .57% .49% .50% .31% .08%*
Average ======== ======== ======== ======== ========
Net Assets: Expenses .80% .82% .88% 1.00% 1.02%*
======== ======== ======== ======== ========
Investment income--net 5.21% 5.35% 5.57% 5.18% 5.20%*
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 11,841 $ 11,468 $ 11,838 $ 15,064 $ 13,276
Data: ======== ======== ======== ======== ========
Portfolio turnover 35.09% 69.34% 123.61% 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>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
Class B
For the
Period
The following per share data and ratios have been derived Jan. 29,
from information provided in the financial statements. 1993++ to
For the Year Ended July 31, July 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1994 1993
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.92 $ 9.85 $ 9.84 $ 10.29 $ 10.00
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .47 .49 .49 .48 .24
Realized and unrealized gain (loss) on
investments--net .42 .07 .01 (.40) .29
-------- -------- -------- -------- --------
Total from investment operations .89 .56 .50 .08 .53
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.47) (.49) (.49) (.48) (.24)
In excess of realized gain on
investments--net -- -- -- (.05) --
-------- -------- -------- -------- --------
Total dividends and distributions (.47) (.49) (.49) (.53) (.24)
-------- -------- -------- -------- --------
Net asset value, end of period $ 10.34 $ 9.92 $ 9.85 $ 9.84 $ 10.29
======== ======== ======== ======== ========
<PAGE>
Total Investment Based on net asset value per share 9.23% 5.70% 5.25% .71% 5.35%+++
Return:** ======== ======== ======== ======== ========
Ratios to Expenses, net of reimbursement 1.08% 1.00% 1.02% .81% .58%*
Average ======== ======== ======== ======== ========
Net Assets: Expenses 1.31% 1.33% 1.40% 1.51% 1.53%*
======== ======== ======== ======== ========
Investment income--net 4.70% 4.84% 5.05% 4.68% 4.71%*
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 65,166 $ 67,770 $ 60,699 $ 59,049 $ 44,692
Data: ======== ======== ======== ======== ========
Portfolio turnover 35.09% 69.34% 123.61% 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>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
Class C
For the
Period
The following per share data and ratios have been derived For the Year Oct. 21,
from information provided in the financial statements. Ended 1994++ to
July 31, July 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995
<S> <S> <C> <C> <C>
Per Share Net asset value, beginning
Operating of period $ 9.92 $ 9.85 $ 9.44
Performance: -------- -------- --------
Investment income--net .46 .48 .37
Realized and unrealized gain on
investments--net .41 .07 .41
-------- -------- --------
Total from investment operations .87 .55 .78
-------- -------- --------
Less dividends from investment
income--net (.46) (.48) (.37)
-------- -------- --------
Net asset value, end of period $ 10.33 $ 9.92 $ 9.85
======== ======== ========
<PAGE>
Total Investment Based on net asset value per share 9.01% 5.59% 8.39%+++
Return:** ======== ======== ========
Ratios to Expenses, net of reimbursement 1.18% 1.11% 1.16%*
Average Net ======== ======== ========
Assets: Expenses 1.41% 1.43% 1.51%*
======== ======== ========
Investment income--net 4.60% 4.73% 4.91%*
======== ======== ========
Supplemental Net assets, end of period
Data: (in thousands) $ 1,319 $ 1,871 $ 839
======== ======== ========
Portfolio turnover 35.09% 69.34% 123.61%
======== ======== ========
<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 D
For the
Period
The following per share data and ratios have been derived For the Year Oct. 21,
from information provided in the financial statements. Ended 1994++ to
July 31, July 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995
<S> <S> <C> <C> <C>
Per Share Net asset value, beginning
Operating of period $ 9.91 $ 9.85 $ 9.44
Performance: -------- -------- --------
Investment income--net .51 .53 .41
Realized and unrealized gain on
investments--net .42 .06 .41
-------- -------- --------
Total from investment operations .93 .59 .82
-------- -------- --------
Less dividends from investment
income--net (.51) (.53) (.41)
-------- -------- --------
Net asset value, end of period $ 10.33 $ 9.91 $ 9.85
======== ======== ========
<PAGE>
Total Investment Based on net asset value per share 9.69% 6.04% 8.84%+++
Return:** ======== ======== ========
Ratios to Expenses, net of reimbursement .68% .59% .63%*
Average Net ======== ======== ========
Assets: Expenses .90% .91% .98%*
======== ======== ========
Investment income--net 5.11% 5.24% 5.46%*
======== ======== ========
Supplemental Net assets, end of period
Data: (in thousands) $ 3,494 $ 1,842 $ 1,045
======== ======== ========
Portfolio turnover 35.09% 69.34% 123.61%
======== ======== ========
<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
<PAGE>
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
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 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.
Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or
under the direction of the Board of Trustees of the Trust, including
valuations furnished by a pricing service retained by the Trust,
which may utilize a matrix system for valuations. The procedures of
the pricing service and its valuations are reviewed by the officers
of the Trust under the general supervision of the Trustees.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
* Financial futures contracts--The Fund may purchase or sell
interest rate futures contracts and options on such futures
contracts for the purpose of hedging the market risk on existing
securities 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.
<PAGE>
(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--Deferred organization expenses
are charged to expense on a straight-line basis over a five-year
period.
(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.
NOTES TO FINANCIAL STATEMENTS (concluded)
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is a
limited partner. The Fund had also entered into a Distribution
Agreement and Distribution Plans with Merill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
<PAGE>
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, 1997, FAM earned
fees of $459,955, of which $190,673 was voluntarily waived.
Pursuant to the distribution plans (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 0.25% 0.25%
Class C 0.25% 0.35%
Class D 0.10% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("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, 1997, MLFD earned underwriting discounts
and MLPF&S earned dealer concessions on sales of the Fund's Class A
and Class D Shares as follows:
MLFD MLPF&S
Class A $263 $2,042
Class D $578 $6,482
For the year ended July 31, 1997, MLPF&S received contingent
deferred sales charges of $184,038 and $1,235 relating to
transactions in Class B and Class C Shares, respectively.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-
owned subsidiary of ML & Co., is the Fund's transfer agent.
<PAGE>
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, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended July 31, 1997 were $27,383,850 and $27,950,524,
respectively.
Net realized and unrealized gains as of July 31, 1997 were as
follows:
Realized Unrealized
Gains Gains
Long-term investments $ 333,178 $ 5,106,236
----------- -----------
Total $ 333,178 $ 5,106,236
=========== ===========
As of July 31, 1997, net unrealized appreciation for Federal income
tax purposes aggregated $5,106,236, all of which is related to
appreciated securities. The aggregate cost of investments at July
31, 1997 for Federal income tax purposes was $75,976,873.
4. Beneficial Interest Transactions:
Net increase (decrease) in net assets derived from beneficial
interest transactions was $(4,496,313) and $8,213,020 for the years
ended July 31, 1997 and July 31, 1996, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 483,321 $ 4,874,526
Shares issued to shareholders
in reinvestment of dividends 25,021 251,502
----------- -----------
Total issued 508,342 5,126,028
Shares redeemed (519,261) (5,217,145)
----------- -----------
Net decrease (10,919) $ (91,117)
=========== ===========
<PAGE>
Class A Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 116,968 $ 1,178,454
Shares issued to shareholders
in reinvestment of dividends 24,119 241,300
----------- -----------
Total issued 141,087 1,419,754
Shares redeemed (186,020) (1,868,674)
----------- -----------
Net decrease (44,933) $ (448,920)
=========== ===========
Class B Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 1,103,009 $11,073,322
Shares issued to shareholders
in reinvestment of dividends 109,610 1,101,486
----------- -----------
Total issued 1,212,619 12,174,808
Automatic conversion of
shares (4,964) (50,214)
Shares redeemed (1,737,143) (17,450,691)
----------- -----------
Net decrease (529,488) $(5,326,097)
=========== ===========
Class B Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 1,561,218 $15,682,673
Shares issued to shareholders
in reinvestment of dividends 106,325 1,063,827
----------- -----------
Total issued 1,667,543 16,746,500
Shares redeemed (993,319) (9,922,169)
----------- -----------
Net increase 674,224 $ 6,824,331
=========== ===========
Class C Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
<PAGE>
Shares sold 32,794 $ 328,330
Shares issued to shareholders
in reinvestment of dividends 5,628 56,537
----------- -----------
Total issued 38,422 384,867
Shares redeemed (99,477) (999,434)
----------- -----------
Net decrease (61,055) $ (614,567)
=========== ===========
Class C Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 129,079 $ 1,296,644
Shares issued to shareholders
in reinvestment of dividends 5,128 51,272
----------- -----------
Total issued 134,207 1,347,916
Shares redeemed (30,728) (305,293)
----------- -----------
Net increase 103,479 $ 1,042,623
=========== ===========
Class D Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 186,467 $ 1,876,970
Automatic conversation of
shares 4,964 50,214
Shares issued to shareholders
in reinvestment of dividends 8,107 81,472
----------- -----------
Total issued 199,538 2,008,656
Shares redeemed (47,123) (473,188)
----------- -----------
Net increase 152,415 $ 1,535,468
=========== ===========
Class D Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 95,065 $ 949,498
Shares issued to shareholders
in reinvestment of dividends 2,640 26,425
----------- -----------
Total issued 97,705 975,923
Shares redeemed (17,941) (180,937)
----------- -----------
Net increase 79,764 $ 794,986
=========== ===========
<PAGE>
5. Capital Loss Carryforward:
At July 31, 1997, the Fund had a capital loss carry-forward of
approximately $3,382,000, of which $1,891,000 expires in 2003,
$1,034,000 expires in 2004 and $457,000 expires in 2005. This amount
will be available to offset like amounts of any future taxable
gains.
<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:
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, 1997, 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 four-year period
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,
1997 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, 1997, 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.
<PAGE>
Deloitte & Touche LLP
Princeton, New Jersey
September 2, 1997
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid monthly by
Merrill Lynch Michigan Municipal Bond Fund during its taxable year
ended July 31, 1997 qualify as tax-exempt interest dividends for
Federal income tax purposes.
Additionally, there were no capital gains distributed by the Fund
during the year.
Please retain this information for your records.
OFFICERS AND TRUSTEES
Arthur Zeikel, President and Trustee
James H. Bodurtha, Trustee
Herbert I. London, Trustee
Robert R. Martin, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Terry K. Glenn, Executive Vice President
Vincent R. Giordano, Senior Vice President
Donald C. Burke, Vice President
Kenneth A. Jacob, Vice President
Fred K. Stuebe, Vice President
Gerald M. Richard, Treasurer
Robert E. Putney III, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
<PAGE>
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
