MERRILL LYNCH
MICHIGAN
MUNICIPAL
BOND FUND
[FUND LOGO]
STRATEGIC
Performance
Semi-Annual Report
January 31, 1998
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless accompanied
or preceded by the Fund's current prospectus. Past performance results
shown in this report should not be considered a representation of
future performance. Investment return and principal value of shares
will fluctuate so that shares, when redeemed, may be worth more or
less than their original cost. Statements and other information
herein are as dated and are subject to change.
Merrill Lynch Michigan
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, NJ
08543-9011 #16561 -- 1/98
[RECYCLE LOGO]
Printed on post-consumer recycled paper
Merrill Lynch Michigan Municipal Bond Fund January 31, 1998
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the six months ended January 31, 1998, long-term bond yields
declined to recent historic lows. Prior to late October, the ongoing
positive combination of moderate economic growth and low inflation had
allowed interest rates to gradually move lower. During the last three
months, however, the decline in interest rates was driven more by the
continued turmoil in Asian equity markets than by fundamental
concerns. A significant "flight to quality" has benefited the US
Treasury bond market, particularly longer-maturity US Treasury bonds,
as foreign investors have sought safe haven in the relative stability
of US financial markets. Over the six months ended January 31, 1998,
US Treasury bond yields declined approximately 50 basis points (0.50%)
to 5.81%.
Without the ability to benefit from the tax advantage inherent in
municipal bonds, foreign investors have not participated in the tax-
exempt market. Consequently, municipal bond yields have not declined
dramatically as have taxable US Treasury securities. Long-term
municipal revenue bond yields, as measured by the Bond Buyer Revenue
Index, declined only 15 basis points to end the six-month period ended
January 31, 1998 at 5.33%. Nevertheless, tax-exempt bond yields have
not reached these levels since the mid-1970s.
The increase in new municipal bond issuance over the past six months
has also prevented the tax-exempt bond market from more closely
mirroring the yield declines exhibited by its taxable counterpart.
During the last six months, over $120 billion in new long-term
municipal bonds were underwritten, an increase of over 30% compared to
the same six-month period one year ago. As interest rates have
continued to decline in recent months, new tax-exempt bond issuance
has remained strong. Over $60 million in new long-term municipal
securities were issued during the last three months, an increase of
over 20% compared to the same three-month period ended January 31,
1997. During the past month, over $16 billion in new long-term
municipal securities were underwritten, representing an increase of
over 40% compared to the January 1997 level.
In our opinion, the recent correction in world equity markets has
enhanced the near-term prospects for continued low, if not declining,
interest rates in the United States. It is likely that the recent
correction will result in slower US domestic growth in the coming
months. This decline should be generated in part by reduced US export
growth. Additionally, some decline in consumer spending can also be
expected because of reduced consumer confidence. Perhaps more
importantly, it is likely that, barring a dramatic and unexpected
resurgence in domestic growth, the Federal Reserve Board will be
unwilling to raise interest rates until the full impact of the equity
market's corrections can be established.
All of these factors suggest that over the near term, interest rates,
including tax-exempt bond yields, are unlikely to rise by any
appreciable amount. It is probable that municipal bond yields will
remain under some relative pressure because of continued strong new-
issue supply. However, the recent pace of municipal bond issuance is
likely to be unsustainable. Continued increases in bond issuance will
require lower and lower tax-exempt bond yields to generate the
economic savings necessary for additional municipal bond refinancings.
Preliminary estimates of 1998 total municipal bond issuance are
presently in the $195 billion -- $220 billion range. These estimates
suggest that recent supply pressures are likely to abate somewhat next
year, or at least exert only minimal technical pressure during 1998.
Additionally, municipal bond investors received approximately $23
billion in January coupon payments, bond maturities and proceeds from
early redemptions, which should serve to intensify investor demand in
the near future. With tax-exempt bond yields at already attractive
yield ratios relative to US Treasury bonds (approximately 90% at the
end of December 1997), any further pressure on the municipal market
may well represent an attractive investment opportunity.
Portfolio Strategy
During the six months ended January 31, 1998, we gradually adopted a
more constructive outlook for the tax-exempt bond market. Our earlier
defensive structure for the Fund was established based on concerns
that the strong domestic economic growth seen through mid-1997 would
continue into 1998. We believed that such strength would eventually
cause the Federal Reserve Board to raise interest rates to ensure that
excessive economic growth would not generate inflationary pressures.
However, as the Asian financial market turmoil developed in late
October 1997 and as US inflation continued to decline, we began to
adopt a more positive outlook. It is likely that US economic growth in
1998 will slow as a result of the Asian economic contraction.
Additionally, until the Asian financial crisis is resolved or US
inflation surges, the Federal Reserve Board is likely to maintain a
stable interest rate environment.
Our ability to make desired portfolio investments over the last six
months has been difficult, despite the surge in Michigan new-issue
supply. For the six months ended January 31, 1998, Michigan
municipalities issued over $2.3 billion in tax-exempt securities, an
increase of over 40% compared to the same period last year. Michigan
issuance has been significantly above national levels as
municipalities rushed at year-end to refinance existing high-coupon
debt with currently low interest rates. However, these issues were
mainly structured to attract individual retail investors. Therefore,
they have been primarily issued as par bonds that would not have
provided the necessary interest rate sensitivity we have sought.
We expect to maintain our current positive view regarding the
municipal bond market going forward into 1998. Should the Asian market
correction intensify and negatively impact US economic growth, we will
likely adopt a more aggressive approach toward the municipal bond
market, since we would expect that interest rates will decline in
response to these developments. Over the six months ended January 31,
1998, the Fund has been fully invested. Michigan issuance for 1998 is
expected to be similar to that in 1997, with the majority of new
underwritings continuing to be dominated by retail-oriented bonds. In
the coming months, we expect to maintain the Fund's fully invested
position in order to seek to continually enhance income to
shareholders.
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,
/S/ARTHUR ZEIKEL
Arthur Zeikel
President
/S/VINCENT R. GIORDANO
Vincent R. Giordano
Senior Vice President
/S/FRED K. STUEBE
Fred K. Stuebe
Vice President and Portfolio Manager
March 4, 1998
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill
Lynch Select PricingSM System, which offers four pricing alternatives:
[bullet] 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.
[bullet] 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.)
[bullet] 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.
[bullet] 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>
<CAPTION>
Recent Performance Results
12 Month 3 Month
1/31/98 10/31/97 1/31/97 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $10.40 $10.26 $10.05 +3.48% +1.36%
Class B Shares* 10.40 10.26 10.05 +3.48 +1.36
Class C Shares* 10.40 10.26 10.05 +3.48 +1.36
Class D Shares* 10.39 10.25 10.04 +3.49 +1.37
Class A Shares -- Total Return* +8.79(1) +2.58(2)
Class B Shares -- Total Return* +8.24(3) +2.45(4)
Class C Shares -- Total Return* +8.13(5) +2.42(6)
Class D Shares -- Total Return* +8.69(7) +2.56(8)
Class A Shares -- Standardized 30-day Yield 3.96%
Class B Shares -- Standardized 30-day Yield 3.62%
Class C Shares -- Standardized 30-day Yield 3.51%
Class D Shares -- Standardized 30-day Yield 3.87%
* 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 $0.511 per share ordinary income dividends.
(2) Percent change includes reinvestment of $0.124 per share ordinary income dividends.
(3) Percent change includes reinvestment of $0.459 per share ordinary income dividends.
(4) Percent change includes reinvestment of $0.111 per share ordinary income dividends.
(5) Percent change includes reinvestment of $0.448 per share ordinary income dividends.
(6) Percent change includes reinvestment of $0.108 per share ordinary income dividends.
(7) Percent change includes reinvestment of $0.501 per share ordinary income dividends.
(8) Percent change includes reinvestment of $0.121 per share ordinary income dividends.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class A Shares
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
1997 10.10 10.37 -- 0.516 + 8.01
1/1/98 -- 1/31/98 10.37 10.40 -- 0.033 + 0.69
Total $2.688
Cumulative total return as of 1/31/98: +36.00%**
* Figures may include short-term capital gains distributions.
** Figures do not include sales charge; results would be lower if sales charge was included.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class B Shares
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
1997 10.10 10.37 -- 0.464 + 7.47
1/1/98 -- 1/31/98 10.37 10.40 -- 0.030 + 0.65
Total $2.432
Cumulative total return as of 1/31/98: +32.58%**
* Figures may include short-term capital gains distributions.
** Figures do not reflect deduction of any sales charge; results would be lower if sales charge was deducted.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class C Shares
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
1997 10.10 10.36 -- 0.453 + 7.25
1/1/98 -- 1/31/98 10.36 10.40 -- 0.029 + 0.73
Total $1.518
Cumulative total return as of 1/31/98: +28.35%**
* Figures may include short-term capital gains distributions.
** Figures do not reflect deduction of any sales charge; results would be lower if sales charge was deducted.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class D Shares
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
1997 10.09 10.36 -- 0.505 + 7.91
1/1/98 -- 1/31/98 10.36 10.39 -- 0.033 + 0.68
Total $1.688
Cumulative total return as of 1/31/98: +30.43%**
* Figures may include short-term capital gains distributions.
** Figures do not include sales charge; results would be lower if sales charge was included.
</TABLE>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/97 +8.01% +3.69%
Inception (1/29/93)
through 12/31/97 +6.30 +5.42
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/97 +7.47% +3.47%
Inception (1/29/93)
through 12/31/97 +5.76 +5.76
* Maximum contingent deferred sales charge is 4% and is reduced
to 0% after 4 years.
** Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 12/31/97 +7.25% +6.25%
Inception (10/21/94)
through 12/31/97 +7.88 +7.88
* Maximum contingent deferred sales charge is 1% and is reduced
to 0% after 1 year.
** Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 12/31/97 +7.91% +3.59%
Inception (10/21/94)
through 12/31/97 +8.44 +7.06
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
<TABLE>
<CAPTION>
Merrill Lynch Michigan Municipal Bond Fund January 31, 1998
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <C> <C> <C> <C>
Michigan -- 92.5%
AA+ Aa2 $1,000 Breitung Township, Michigan, School District, Refunding, UT, 6.30%
due 5/01/2019 $1,084
AAA Aaa 2,500 Brighton, Michigan, Area School District Refunding Bonds, UT, Series II,
4.90%** due 5/01/2015 (d) 1,068
A A3 1,000 Detroit, Michigan, Local Development Finance Authority, Refunding, Senior
Series A, 5.375% due 5/01/2021 1,014
AAA Aaa 2,500 Detroit, Michigan, Sewage Disposal System Revenue Bonds, Series A, 5% due
7/01/2027 (b) 2,443
Detroit, Michigan, Water Supply System Revenue Bonds:
AAA Aaa 2,900 INFLOS, 6.375% due 7/01/2022 (c)(f) 3,447
AAA Aaa 1,500 Series A, 5% due 7/01/2027 (b) 1,466
BBB Baa1 2,000 Dickinson County, Michigan, Economic Development Corp., Solid Waste
Disposal Revenue Refunding Bonds (Champion International), 6.55% due
3/01/2007 2,139
AAA Aaa 1,500 Ferndale, Michigan, UT, Series III, 5% due 4/01/2016 (b) 1,491
Grand Ledge, Michigan, Public Schools District, UT (b):
AAA Aaa 2,500 6.60% due 5/01/2004 (e) 2,868
AAA Aaa 1,500 Refunding, 5.375% due 5/01/2024 1,530
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) 3,266
AA+ Aa2 4,000 Haslett, Michigan, Public School District, Refunding, UT, 6.625% due
5/01/2019 4,398
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) 2,208
A1 VMIG1+ 300 Michigan Higher Education Student Loan Authority Revenue Bonds, VRDN, AMT,
Series XII-D, 3.60% due 10/01/2015 (a)(d) 300
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) 1,092
AA+ Aa1 1,000 Michigan Municipal Bond Authority Revenue Bonds (State Revolving Fund),
Series A, 6.55% due 10/01/2002 (e) 1,121
Michigan Municipal Bond Authority, Revenue Refunding Bonds (Local
Government Loan Program), Series G (d):
AAA Aaa 2,000 5.03%** due 5/01/2019 682
AAA Aaa 1,855 5.03%** due 5/01/2020 601
AA- NR* 2,000 Michigan State, HDA, Rental Housing Revenue Refunding Bonds, Series A,
6.60% due 4/01/2012 2,129
Michigan State, HDA, S/F Mortgage Revenue Bonds:
AA+ NR* 755 AMT, Series B, 7.05% due 6/01/2026 814
AA+ NR* 3,335 Refunding, AMT, Series D, 6.85% due 6/01/2026 3,577
AA+ NR* 2,150 Series A, 6.50% due 12/01/2017 2,289
AA+ NR* 2,255 Series B, 6.95% due 12/01/2020 2,389
Michigan State Hospital Finance Authority Revenue Bonds:
AAA Aaa 2,000 (Mercy Health Services), Series Q, 5.375% due 8/15/2026 (d) 2,030
A A2 3,500 Refunding (Detroit Medical Center Obligation Group), Series A, 6.50% due
8/15/2018 3,805
AA- Aa3 1,330 Refunding (Mercy Health Services), Series S, 5.50% due 8/15/2020 1,368
AAA Aaa 3,000 (Saint John Hospital and Medical Center), Series A, 5.25% due 5/15/2026
(d) 3,002
Michigan State Strategic Fund, Limited Obligation Revenue Bonds:
AAA Aaa 2,000 Refunding (Detroit Edison Co. Project), 6.875% due 12/01/2021 (c) 2,201
A A1 1,250 Refunding (Ford Motor Co. Project), Series A, 7.10% due 2/01/2006 1,479
A- Baa1 1,000 (Waste Management Inc. Project), AMT, 6.625% due 12/01/2012 1,084
NR* VMIG1+ 100 Michigan State Strategic Fund, Solid Waste Disposal Revenue Bonds
(Grayling Generating Project), VRDN, AMT, 3.60% due 1/01/2014 (a) 100
AAA Aaa 2,435 Michigan State University, General Revenue Bonds, Series A, 5% due
2/15/2026 (d) 2,388
NR* Aaa 1,000 Reeths-Puffer, Michigan Schools Refunding Bonds, UT, 5% due 5/01/2025 (c) 981
AA- Aa3 1,785 Royal Oak, Michigan, Hospital Finance Authority, Revenue Refunding Bonds
(Beaumont Properties, Inc.), Series E, 6.625% due 1/01/2019 1,938
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) 1,136
AAA Aaa 1,250 School Craft, Michigan, Community School District, UT, 5.375% due 5/01/2026
(c) 1,276
AAA Aaa 2,300 Three Rivers, Michigan, Community Schools Building and Site, UT, 6% due
5/01/2023 (b) 2,497
A1+ VMIG1+ 1,200 University of Michigan, University Hospital Revenue Bonds, VRDN, Series A,
3.70% due 12/01/2027 (a) 1,200
Western Michigan University, General Revenue Bonds (c):
AAA Aaa 1,500 6.125% due 11/15/2002 (e) 1,660
AAA Aaa 2,500 Refunding, 5.125% due 11/15/2022 2,488
AAA Aaa 2,000 Ypsilanti, Michigan, School District Refunding Bonds, UT, 5.375% due
5/01/2026 (c) 2,041
Puerto Rico -- 6.1%
Puerto Rico, Commonwealth Refunding Bonds (Public Improvement):
AAA Aaa 1,000 5.375% due 7/01/2021 (b) 1,030
A Baa1 1,950 4.50% due 7/01/2023 1,782
AAA Aaa 2,150 Puerto Rico Electric Power Authority, Series AA, 5.375% due 7/01/2027 (b) 2,218
---------
Total Investments (Cost -- $75,744) -- 98.6% 81,120
Other Assets Less Liabilities -- 1.4% 1,123
---------
Net Assets -- 100.0% $82,243
=========
(a) The interest rate is subject to change periodically based upon prevailing market rates. The interest rate shown is the
rate in effect at January 31, 1998.
(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 January 31, 1998.
* Not Rated.
** Represents a zero coupon bond; the interest rate shown is the effective yield at the time of purchase by the Fund.
+ Highest short-term rating by Moody's Investors Service, Inc.
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
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of January 31, 1998
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $75,744,015) (Note 1a) $81,119,744
Cash 776
Receivables:
Securities sold $2,469,195
Interest 1,020,845
Beneficial interest sold 188,688 3,678,728
------------
Deferred organization expenses (Note 1e) 4,906
Prepaid expenses and other assets 1,441
------------
Total assets 84,805,595
------------
Liabilities: Payables:
Securities purchased 2,221,073
Beneficial interest redeemed 145,781
Dividends to shareholders (Note 1f) 57,623
Investment adviser (Note 2) 38,529
Distributor (Note 2) 28,608 2,491,614
------------
Accrued expenses and other liabilities 71,122
------------
Total liabilities 2,562,736
------------
Net Assets: Net assets $82,242,859
============
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited number of
Consist of: shares authorized $122,660
Class B Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 618,001
Class C Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 15,976
Class D Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 34,197
Paid-in capital in excess of par 79,796,747
Accumulated realized capital losses on investments -- net (Note 5) (3,691,222)
Accumulated distributions in excess of realized capital gains on
investments -- net (Note 1f) (29,229)
Unrealized appreciation on investments -- net 5,375,729
------------
Net assets $82,242,859
============
Net Asset Value: Class A -- Based on net assets of $12,756,416 and 1,226,604 shares
of beneficial interest outstanding $10.40
============
Class B -- Based on net assets of $64,270,925 and 6,180,009 shares
of beneficial interest outstanding $10.40
============
Class C -- Based on net assets of $1,661,280 and 159,756 shares of
beneficial interest outstanding $10.40
============
Class D -- Based on net assets of $3,554,238 and 341,966 shares
of beneficial interest outstanding $10.39
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Six Months Ended
January 31, 1998
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned $2,313,283
(Note 1d):
Expenses: Investment advisory fees (Note 2) $226,063
Account maintenance and distribution fees -- Class B (Note 2) 162,074
Professional fees 27,551
Accounting services (Note 2) 24,449
Printing and shareholder reports 22,341
Transfer agent fees -- Class B (Note 2) 18,659
Registration fees 5,488
Account maintenance and distribution fees -- Class C (Note 2) 4,676
Pricing fees 3,491
Custodian fees 2,977
Transfer agent fees -- Class A (Note 2) 2,949
Amortization of organization expenses (Note 1e) 2,448
Trustees' fees and expenses 2,283
Account maintenance fees -- Class D (Note 2) 1,729
Transfer agent fees -- Class D (Note 2) 841
Transfer agent fees -- Class C (Note 2) 501
Other 1,681
-----------
Total expenses before reimbursement 510,201
Reimbursement of expenses (Note 2) (26,354)
-----------
Total expenses after reimbursement 483,847
-----------
Investment income -- net 1,829,436
-----------
Realized & Realized gain on investments -- net 223,852
Unrealized Gain on Change in unrealized appreciation on investments -- net 269,493
Investments -- Net -----------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $2,322,781
===========
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
Increase (Decrease) in Net Assets: Jan. 31, 1998 July 31, 1997
<S> <C> <C> <C>
Operations: Investment income -- net $1,829,436 $4,001,677
Realized gain on investments -- net 223,852 333,178
Change in unrealized appreciation on investments -- net 269,493 3,032,220
----------- -----------
Net increase in net assets resulting from operations 2,322,781 7,367,075
----------- -----------
Dividends to Investment income -- net:
Shareholders Class A (299,666) (601,588)
(Note 1f): Class B (1,412,813) (3,179,093)
Class C (33,110) (76,539)
Class D (83,847) (144,457)
----------- -----------
Net decrease in net assets resulting from dividends to shareholders (1,829,436) (4,001,677)
----------- -----------
Beneficial Interest Net decrease in net assets derived from beneficial interest transactions (70,326) (4,496,313)
Transactions ----------- -----------
(Note 4):
Net Assets: Total increase (decrease) in net assets 423,019 (1,130,915)
Beginning of period 81,819,840 82,950,755
----------- -----------
End of period $82,242,859 $81,819,840
=========== ===========
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Class A
For the
Six
The following per share data and ratios have been derived Months
from information provided in the financial statements. Ended
Jan. 31, For the Year Ended July 31,
1998 1997 1996 1995 1994
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.34 $9.92 $9.85 $9.84 $10.29
Operating --------- --------- --------- --------- ---------
Performance: Investment income -- net .25 .52 .54 .53 .53
Realized and unrealized gain (loss) on
investments -- net .06 .42 .07 .01 (.40)
--------- --------- --------- --------- ---------
Total from investment operations .31 .94 .61 .54 .13
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income -- net (.25) (.52) (.54) (.53) (.53)
In excess of realized gain on
investments -- net -- -- -- -- (.05)
--------- --------- --------- --------- ---------
Total dividends and distributions (.25) (.52) (.54) (.53) (.58)
--------- --------- --------- --------- ---------
Net asset value, end of period $10.40 $10.34 $9.92 $9.85 $9.84
========= ========= ========= ========= =========
Total Investment Based on net asset value per share 3.09%++++ 9.79% 6.25% 5.79% 1.22%
Return:** ========= ========= ========= ========= =========
Ratios to Expenses, net of reimbursement .76%* .57% .49% .50% .31%
Average ========= ========= ========= ========= =========
Net Assets: Expenses .82%* .80% .82% .88% 1.00%
========= ========= ========= ========= =========
Investment income -- net 4.87%* 5.21% 5.35% 5.57% 5.18%
========= ========= ========= ========= =========
Supplemental Net assets, end of period (in thousands) $12,757 $11,841 $11,468 $11,838 $15,064
Data: ========= ========= ========= ========= =========
Portfolio turnover 23.92% 35.09% 69.34% 123.61% 71.70%
========= ========= ========= ========= =========
* Annualized.
** Total investment returns exclude the effects of sales loads.
++++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Class B
For the
Six
The following per share data and ratios have been derived Months
from information provided in the financial statements. Ended
Jan. 31, For the Year Ended July 31,
1998 1997 1996 1995 1994
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.34 $9.92 $9.85 $9.84 $10.29
Operating --------- --------- --------- --------- ---------
Performance: Investment income -- net .23 .47 .49 .49 .48
Realized and unrealized gain (loss) on
investments -- net .06 .42 .07 .01 (.40)
--------- --------- --------- --------- ---------
Total from investment operations .29 .89 .56 .50 .08
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income -- net (.23) (.47) (.49) (.49) (.48)
In excess of realized gain on
investments -- net -- -- -- -- (.05)
--------- --------- --------- --------- ---------
Total dividends and distributions (.23) (.47) (.49) (.49) (.53)
--------- --------- --------- --------- ---------
Net asset value, end of period $10.40 $10.34 $9.92 $9.85 $9.84
========= ========= ========= ========= =========
Total Investment Based on net asset value per share 2.82%++++ 9.23% 5.70% 5.25% .71%
Return:** ========= ========= ========= ========= =========
Ratios to Expenses, net of reimbursement 1.27%* 1.08% 1.00% 1.02% .81%
Average ========= ========= ========= ========= =========
Net Assets: Expenses 1.33%* 1.31% 1.33% 1.40% 1.51%
========= ========= ========= ========= =========
Investment income -- net 4.36%* 4.70% 4.84% 5.05% 4.68%
========= ========= ========= ========= =========
Supplemental Net assets, end of period (in thousands) $64,271 $65,166 $67,770 $60,699 $59,049
Data: ========= ========= ========= ========= =========
Portfolio turnover 23.92% 35.09% 69.34% 123.61% 71.70%
========= ========= ========= ========= =========
* Annualized.
** Total investment returns exclude the effects of sales loads.
++++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Class C
For the For the
Six Period
The following per share data and ratios have been derived Months For the Year Oct. 21,
from information provided in the financial statements. Ended Ended 1994+ to
Jan. 31, July 31, July 31,
1998 1997 1996 1995
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.33 $9.92 $9.85 $9.44
Operating --------- --------- --------- ---------
Performance: Investment income -- net .22 .46 .48 .37
Realized and unrealized gain on investments -- net .07 .41 .07 .41
--------- --------- --------- ---------
Total from investment operations .29 .87 .55 .78
--------- --------- --------- ---------
Less dividends from investment income -- net (.22) (.46) (.48) (.37)
--------- --------- --------- ---------
Net asset value, end of period $10.40 $10.33 $9.92 $9.85
========= ========= ========= =========
Total Investment Based on net asset value per share 2.87%++++ 9.01% 5.59% 8.39%++++
Return:** ========= ========= ========= =========
Ratios to Expenses, net of reimbursement 1.38%* 1.18% 1.11% 1.16%*
Average Net ========= ========= ========= =========
Assets: Expenses 1.44%* 1.41% 1.43% 1.51%*
========= ========= ========= =========
Investment income -- net 4.25%* 4.60% 4.73% 4.91%*
========= ========= ========= =========
Supplemental Net assets, end of period (in thousands) $1,661 $1,319 $1,871 $839
Data: ========= ========= ========= =========
Portfolio turnover 23.92% 35.09% 69.34% 123.61%
========= ========= ========= =========
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Class D
For the For the
Six Period
The following per share data and ratios have been derived Months For the Year Oct. 21,
from information provided in the financial statements. Ended Ended 1994+ to
Jan. 31, July 31, July 31,
1998 1997 1996 1995
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.33 $9.91 $9.85 $9.44
Operating --------- --------- --------- ---------
Performance: Investment income -- net .25 .51 .53 .41
Realized and unrealized gain on investments -- net .06 .42 .06 .41
--------- --------- --------- ---------
Total from investment operations .31 .93 .59 .82
--------- --------- --------- ---------
Less dividends from investment income -- net (.25) (.51) (.53) (.41)
--------- --------- --------- ---------
Net asset value, end of period $10.39 $10.33 $9.91 $9.85
========= ========= ========= =========
Total Investment Based on net asset value per share 3.04%++++ 9.69% 6.04% 8.84%++++
Return:** ========= ========= ========= =========
Ratios to Expenses, net of reimbursement .86%* .68% .59% .63%*
Average Net ========= ========= ========= =========
Assets: Expenses .92%* .90% .91% .98%*
========= ========= ========= =========
Investment income -- net 4.77%* 5.11% 5.24% 5.46%*
========= ========= ========= =========
Supplemental Net assets, end of period (in thousands) $3,554 $3,494 $1,842 $1,045
Data: ========= ========= ========= =========
Portfolio turnover 23.92% 35.09% 69.34% 123.61%
========= ========= ========= =========
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Michigan Municipal Bond Fund January 31, 1998
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. These
unaudited financial statements reflect all adjustments which are,
in the opinion of management, necessary to a fair statement of
results for the interim period presented. All such adjustments are
of a normal recurring nature. The Fund offers four classes of shares
under the Merrill Lynch Select PricingSM 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.
[bullet] 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.
(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 gains are due primarily to differing tax treatments for
futures transactions and postOctober losses.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned subsidiary
of Merrill Lynch & Co., Inc. ("ML & Co."), which is 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.
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 six months ended January 31, 1998, FAM earned
fees of $226,063, of which $26,354 was voluntarily waived.
Pursuant to the Distribution Plans adopted by the Fund in accordance
with Rule 12b-1 under the Investment Company Act of 1940, the Fund
pays the Distributor ongoing account maintenance and distribution
fees. The fees are accrued daily and paid monthly at annual rates
based upon the average daily net assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B 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 six months ended January 31, 1998, 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 $160 $1,880
Class D $688 $7,546
For the six months ended January 31, 1998, MLPF&S received contingent
deferred sales charges of $42,055 and $60 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.
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 six months ended January 31, 1998 were $18,549,628 and
$21,544,517, respectively.
Net realized and unrealized gains (losses) as of January 31, 1998 were
as follows:
Realized Unrealized
Gains (Losses) Gains
Long-term investments $497,662 $5,375,729
Financial futures contracts (273,810) --
------------ ------------
Total $223,852 $5,375,729
============ ============
As of January 31, 1998, net unrealized appreciation for Federal income
tax purposes aggregated $5,375,729, of which $5,448,503 is related to
appreciated securities and $72,774 related to depreciated securities.
The aggregate cost of investments at January 31, 1998 for Federal
income tax purposes was $75,744,015.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest
transactions was $70,326 and $4,496,313 for the six months ended
January 31, 1998 and for the year ended July 31, 1997, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Six Months Dollar
Ended January 31, 1998 Shares Amount
Shares sold 159,574 $1,643,213
Shares issued to shareholders
in reinvestment of dividends 15,485 159,198
------------ ------------
Total issued 175,059 1,802,411
Shares redeemed (94,040) (964,972)
------------ ------------
Net increase 81,019 $837,439
============ ============
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)
============ ============
Class B Shares for the Six Months Dollar
Ended January 31, 1998 Shares Amount
Shares sold 440,589 $4,530,254
Shares issued to shareholders
in reinvestment of dividends 50,122 515,034
------------ ------------
Total issued 490,711 5,045,288
Shares redeemed (615,544) (6,320,743)
------------ ------------
Net decrease (124,833) $(1,275,455)
============ ============
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 C Shares for the Six Months Dollar
Ended January 31, 1998 Shares Amount
Shares sold 39,570 $404,099
Shares issued to shareholders
in reinvestment of dividends 2,520 25,907
------------ ------------
Total issued 42,090 430,006
Shares redeemed (9,969) (102,164)
------------ ------------
Net increase 32,121 $327,842
============ ============
Class C Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
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 D Shares for the Six Months Dollar
Ended January 31, 1998 Shares Amount
Shares sold 29,292 $303,004
Shares issued to shareholders
in reinvestment of dividends 7,486 76,711
------------ ------------
Total issued 36,778 379,715
Shares redeemed (33,114) (339,867)
------------ ------------
Net increase 3,664 $39,848
============ ============
Class D Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 186,467 $1,876,970
Automatic conversion
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
============ ============
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.
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
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
