MERRILL LYNCH
MICHIGAN
MUNICIPAL
BOND FUND
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
July 31, 1999
<PAGE>
Merrill Lynch Michigan Municipal Bond Fund July 31, 1999
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the six months ended July 31, 1999, long-term bond yields rose
significantly. Steady US economic growth combined with improvement in foreign
economies, most notably Japan and Brazil, as well as an inflation scare in early
May put upward pressure on bond yields throughout the period. Continued strong
US employment growth, particularly the decline in the US unemployment rate to
4.2% in early June, was among the reasons the Federal Reserve Board cited for
raising short-term interest rates in late June. US Treasury bond yields reacted
by climbing above 6.15% by late June before improving somewhat to 6.10% by July
31, 1999. During the six-month period ended July 31, 1999, yields on long-term
US Treasury bonds increased approximately 100 basis points (1.00%).
Long-term tax-exempt bond yields also rose during the last six months. Until
early May, the municipal bond market had been able to withstand much of the
upward pressure on bond yields. However, investor concerns regarding ongoing US
economic strength and the fear of additional moves by the Federal Reserve Board
eventually pushed municipal bond yields higher throughout June and July. The
yields on long-term tax-exempt revenue bonds rose almost 50 basis points to
5.65%, as measured by the Bond Buyer Revenue Bond Index.
The ability of the tax-exempt bond market to withstand much of the recent upward
pressure on long-term fixed-income bond yields has been a reflection of the
continued strong technical position the municipal bond market has enjoyed in
recent quarters. During the last six months, more than $120 billion in long-term
municipal bonds was underwritten, a decrease of more than 20% compared to the
same period a year ago. During the past three months, more than $60 billion in
municipal bonds was underwritten. This quarterly issuance represents a decline
of nearly 25% compared to the same three-month period in 1998.
Recently, the municipal supply position deteriorated even further. Total
issuance in July 1999 of $16.5 billion was more than 30% lower than July 1998
levels. Additionally, in June and July, investors received more than $40 billion
in coupon income and proceeds from bond maturities and early bond redemptions.
These proceeds have generated significant retail investor interest, easily
absorbing the recent diminished supply. This very favorable supply/demand
position allowed the tax-exempt bond market to outperform its taxable
counterpart in recent months.
However, the recent relative outperformance of the municipal bond market has
somewhat reduced the very attractive tax-exempt bond yield ratios that were
available at the end of 1998. In December 1998, long-term, uninsured municipal
bond yields were higher than those of their taxable counterparts. Historically,
long-term tax-exempt bond yields have been approximately 82%-85% of long-term US
Treasury bond yields. Municipal bond yields rose at a lower rate in recent
months than US Treasury bond yields, causing the yield ratio to decline. At July
31, 1999, long-term municipal bond yields were approximately 92% of their
taxable counterparts. Current ratios, while lower than those available at the
end of 1998, still represent historically attractive levels. We expect the
municipal bond market to maintain its strong technical position for the
remainder of 1999. Consequently, there appears to be little reason for the
tax-exempt bond market to underperform the taxable US Treasury bond market. This
suggests that the present bond yield ratio is likely to be stable in the coming
months and a return to a ratio in excess of 100% of taxable Treasury securities
is improbable.
Looking ahead, it appears to us that long-term municipal bond yields will trade
in a relatively tight range near current levels. Strong US economic performance
is being balanced by nearly negligible inflation data, as well as improvements
in productivity in both manufacturing and service industries. We believe that
future moves by the Federal Reserve Board have largely been discounted by bond
markets and are to a great extent reflected in present bond yields.
Any improvement in bond prices is likely to be contingent upon weakening in both
US employment growth and consumer spending. The 100 basis point rise in US
Treasury bond yields seen thus far this year is likely to negatively affect US
economic growth. The US housing market will be among the first sectors likely to
be affected, as some declines have already been evidenced because of higher
mortgage rates. We believe it is also unrealistic to expect double-digit returns
in US equity markets to continue indefinitely. Much of the US consumer's wealth
is tied to recent stock market appreciation. Any slowing in these incredible
growth rates is likely to reduce consumer spending. We believe that these
factors suggest
1
<PAGE>
Merrill Lynch Michigan Municipal Bond Fund July 31, 1999
that the worst of the recent increase in bond yields has passed and stable, if
not slightly improving, bond prices may be expected.
Fiscal Year in Review
At the start of the fiscal year ended July 31, 1999, the US economy was strong
and inflation was low. We opted to maintain a fully invested position going into
the second half of the year and sought to maintain a high level of tax-exempt
income. We believed that in the absence of any material inflationary pressures
and given the enhanced productivity of US companies, any increases in US
economic strength would not result in significant increases in interest rates.
However, the Federal Reserve Board raised interest rates in May. Modest
improvements in foreign economies also played a factor in the Federal Reserve
Board's decision to raise short-term interest rates, which pushed long-term
interest rates higher as well. We remained fully invested, believing that the
recent spike in bond yields would be temporary. Unfortunately, concerns lingered
that the Federal Reserve Board would continue to tighten monetary policy, which
occurred after the close of the period at the end of August. These concerns
pushed long-term bond yields higher and faster than we expected, negatively
affecting Fund performance for the latter half of the fiscal year. Therefore,
for the 12 months ended July 31, 1999, the Fund achieved below-average total
returns compared to similar Michigan tax-exempt bond funds, as measured by
Lipper Analytical Services. However, our overall strategy did allow the Fund to
generate above-average dividend yields compared to the industry average.
(Complete performance information can be found on pages 3 and 4 of this report
to shareholders.)
During the last six months of the fiscal year, long-term Michigan municipal bond
issuance declined at a far faster rate than issuance at the national level.
Michigan municipalities issued less than $2.8 billion in securities during the
last six months, a decline of more than 50% compared to the same period a year
ago. Recently, the pace of issuance declined further. During the three months
ended July 31, 1999, less than $1.3 billion in Michigan tax-exempt securities
was underwritten, which is a decrease of approximately 65% compared to the same
period last year.
The relative scarcity of Michigan tax-exempt issues has inhibited us from
restructuring the Fund more defensively. Appropriately structured defensive
issues have largely been unavailable. The vast majority of new issues has been
targeted toward retail investors whose primary interest has been in current
coupon or slight discount issues. While we have purchased defensively oriented
issues when they are available, such purchases are limited in number and offered
a marginal effect in protecting the Fund's net asset valuations.
Market liquidity was reduced because of scarce municipal supply, as reinvestment
of large cash positions in a timely fashion would be problematic. More
significantly, large defensive cash positions tend to have an immediate,
negative impact on the Fund's dividend income. Since we have always placed
primary importance on seeking to enhance shareholder income, we typically avoid
large cash positions.
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/ Terry K. Glenn
Terry K. Glenn
President
/s/ Vincent R. Giordano
Vincent R. Giordano
Senior Vice President
/s/ Fred K. Stuebe
Fred K. Stuebe
Vice President and Portfolio Manager
September 16, 1999
2
<PAGE>
Merrill Lynch Michigan Municipal Bond Fund July 31, 1999
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:
o 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.
o 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.)
o 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.
o Class D Shares incur a maximum initial sales charge of 4% and an account
maintenance fee of 0.10% (but no distribution fee).
None of the past results shown should be considered a representation of
future performance. Figures shown in the "Recent Performance Results" and
"Average Annual Total Return" tables assume reinvestment of all dividends
and capital gains distributions at net asset value on the payable date.
Investment return and principal value of shares will fluctuate so that
shares, when redeemed, may be worth more or less than their original cost.
Dividends paid to each class of shares will vary because of the different
levels of account maintenance, distribution and transfer agency fees
applicable to each class, which are deducted from the income available to
be paid to shareholders.
Recent Performance Results*
<TABLE>
<CAPTION>
Standardized
12 Month 3 Month Since Inception 30-Day Yield
Total Return Total Return Total Return As of 7/31/99
==============================================================================================================
<S> <C> <C> <C> <C>
ML Michigan Municipal Bond Fund Class A Shares +0.34% -2.33% +38.78% 4.35%
- --------------------------------------------------------------------------------------------------------------
ML Michigan Municipal Bond Fund Class B Shares -0.17 -2.45 +34.27 4.02
- --------------------------------------------------------------------------------------------------------------
ML Michigan Municipal Bond Fund Class C Shares -0.17 -2.48 +29.79 3.92
- --------------------------------------------------------------------------------------------------------------
ML Michigan Municipal Bond Fund Class D Shares +0.34 -2.35 +33.03 4.25
==============================================================================================================
</TABLE>
* Investment results shown do not reflect sales charges; results would be
lower if a sales charge was included. Total investment returns are based
on changes in net asset values for the periods shown, and assume
reinvestment of all dividends and capital gains distributions at net asset
value on the payable date. The Fund's since inception dates are from
1/29/93 for Class A & Class B Shares and from 10/21/94 for Class C & Class
D Shares.
3
<PAGE>
Merrill Lynch Michigan Municipal Bond Fund July 31, 1999
PERFORMANCE DATA (concluded)
ML Michigan Municipal Bond Fund's Class A and Class B Shares--Total Return Based
on a $10,000 Investment
A line graph depicting the growth of an investment in the Portfolio'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** 7/99
ML Michigan
Municipal Bond Fund+--
Class A Shares* $ 9,600 $13,322
ML Michigan
Municipal Bond Fund+--
Class B Shares* $10,000 $13,427
Lehman Brothers Municipal
Bond Index++ $10,000 $14,930
ML Michigan Municipal Bond Fund's Class C and Class D Shares--Total Return Based
on a $10,000 Investment
A line graph depicting the growth of an investment in the Portfolio's Class C
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** 7/99
ML Michigan
Municipal Bond Fund+--
Class C Shares* $10,000 $12,979
ML Michigan
Municipal Bond Fund+--
Class D Shares* $ 9,600 $12,773
Lehman Brothers Municipal
Bond Index++ $10,000 $14,235
* 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. The starting date for
the Index in the Class C & Class D Shares' graph is from 10/31/94.
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 6/30/99 +0.37% -3.65%
- --------------------------------------------------------------------------------
Five Years Ended 6/30/99 +5.79 +4.93
- --------------------------------------------------------------------------------
Inception (1/29/93)
through 6/30/99 +5.21 +4.54
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
Year Ended 6/30/99 -0.14% -3.97%
- --------------------------------------------------------------------------------
Five Years Ended 6/30/99 +5.25 +5.25
- --------------------------------------------------------------------------------
Inception (1/29/93)
through 6/30/99 +4.68 +4.68
- --------------------------------------------------------------------------------
* 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 6/30/99 -0.24% -1.20%
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 6/30/99 +5.68 +5.68
- --------------------------------------------------------------------------------
* 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 6/30/99 +0.26% -3.75%
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 6/30/99 +6.21 +5.29
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
4
<PAGE>
Merrill Lynch Michigan Municipal Bond Fund July 31, 1999
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- -----------------------------------------------------------------------------------------------------------------------------------
Michigan--97.2%
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AAA Aaa $2,500 Avondale, Michigan, School District, GO, Refunding, 4.75% due 5/01/2022 (d) $ 2,222
- -----------------------------------------------------------------------------------------------------------------------------------
AA+ Aa2 1,000 Breitung Township, Michigan, School District, GO, Refunding, 6.30% due 5/01/2019 1,062
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,500 Chippewa Valley, Michigan, Schools, GO, Refunding, 5% due 5/01/2027 (d) 1,388
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Decatur, Michigan, Public Schools, Van Burn-Cass Counties, GO, 5% due 5/01/2024 (f) 930
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,575 Detroit, Michigan, City School District, GO, Series B, 5% due 5/01/2021 (c) 2,410
- -----------------------------------------------------------------------------------------------------------------------------------
A+ A3 1,000 Detroit, Michigan, Local Development Finance Authority, Tax Increment Refunding Bonds,
Senior Series A, 5.375% due 5/01/2021 971
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Detroit, Michigan, Sewage Disposal Revenue Bonds, Series A, 5% due 7/01/2027 (b) 925
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,900 Detroit, Michigan, Water Supply System, Revenue Refunding Bonds, INFLOS,
9.221% due 7/01/2022 (c)(e) 3,295
- -----------------------------------------------------------------------------------------------------------------------------------
AAA VMIG1+ 1,100 Grand Rapids, Michigan, Water Supply Revenue Refunding Bonds, VRDN,
3.05% due 1/01/2020 (a)(c) 1,100
- -----------------------------------------------------------------------------------------------------------------------------------
Grand Traverse County, Michigan, Hospital Revenue Refunding Bonds (Munson Healthcare),
Series A (d):
AAA Aaa 1,145 5.50% due 7/01/2018 1,142
AAA Aaa 970 6.25% due 7/01/2022 1,027
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,500 Greeneville, Michigan, Public Schools, GO, Refunding, 5% due 5/01/2024 (f) 1,395
- -----------------------------------------------------------------------------------------------------------------------------------
AA+ Aa2 2,500 Haslett, Michigan, Public School District, GO, Refunding, 6.625% due 5/01/2019 2,678
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Kalamazoo, Michigan, Hospital Finance Authority, Hospital Facility Revenue Refunding and
Improvement Bonds (Bronson Methodist Hospital), Series A, 6.375% due 5/15/2017 (b) 2,175
- -----------------------------------------------------------------------------------------------------------------------------------
Kalamazoo, Michigan, Hospital Finance Authority, Hospital Facility Revenue Refunding
Bonds (Bronson Methodist Hospital) (b):
NR* Aaa 1,340 5.25% due 5/15/2018 1,284
NR* Aaa 1,500 RIB, Series 138, 7.51% due 5/15/2028 (e) 1,424
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Lincoln, Michigan, Consolidated School District, GO, 5% due 5/01/2028 (f) 924
- -----------------------------------------------------------------------------------------------------------------------------------
AAA VMIG1+ 300 Michigan Higher Education, Student Loan Revenue Bonds, VRDN, AMT, Series XII-D,
3.10% due 10/01/2015 (a)(d) 300
- -----------------------------------------------------------------------------------------------------------------------------------
AA+ Aa1 2,750 Michigan Municipal Bond Authority Revenue Bonds (Drinking Water Revolving Fund),
4.75% due 10/01/2020 2,462
- -----------------------------------------------------------------------------------------------------------------------------------
AA- NR* 1,895 Michigan State, HDA, Rental Housing Revenue Refunding Bonds, Series A,
6.60% due 4/01/2012 (h) 2,013
- -----------------------------------------------------------------------------------------------------------------------------------
AA+ NR* 705 Michigan State, HDA, Revenue Bonds, Series A, 6.50% due 12/01/2017 739
- -----------------------------------------------------------------------------------------------------------------------------------
</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)
GO General Obligation Bonds
HDA Housing Development Authority
INFLOS Inverse Floating Rate Municipal Bonds
RIB Residual Interest Bonds
RITR Residual Interest Trust Receipts
VRDN Variable Rate Demand Notes
5
<PAGE>
Merrill Lynch Michigan Municipal Bond Fund July 31, 1999
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- -----------------------------------------------------------------------------------------------------------------------------------
Michigan (concluded)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AA+ NR* $2,120 Michigan State, HDA, Revenue Refunding Bonds, AMT, Series D, 6.85% due 6/01/2026 (g) $ 2,213
- -----------------------------------------------------------------------------------------------------------------------------------
Michigan State Hospital Finance Authority, Revenue Refunding Bonds:
NR* A1 1,500 (McLaren Health Care Corp.), Series A, 5% due 6/01/2028 1,319
AA- Aa3 1,330 (Mercy Health Services), Series S, 5.50% due 8/15/2020 1,298
- -----------------------------------------------------------------------------------------------------------------------------------
BBB+ Baa3 1,000 Michigan State Strategic Fund, Limited Obligation Revenue Bonds (Waste Management Inc.
Project), AMT, 6.625% due 12/01/2012 1,059
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,500 Michigan State Strategic Fund, Limited Obligation Revenue Refunding Bonds
(Detroit Edison Company), AMT, Series A, 5.55% due 9/01/2029 (b) 1,470
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Michigan State Trunk Line, Revenue Refunding Bonds, Series A, 5% due 11/01/2026 (b) 1,851
- -----------------------------------------------------------------------------------------------------------------------------------
Muskegon Heights, Michigan, Public Schools, GO (b):
AAA Aaa 1,000 5% due 5/01/2024 930
AAA Aaa 1,000 5% due 5/01/2029 922
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Ravenna, Michigan, Public Schools, GO, 5.25% due 5/01/2024 (c) 1,920
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,600 Richmond, Michigan, Community School District, GO, Refunding, 4.75% due 5/01/2022 (c) 1,434
- -----------------------------------------------------------------------------------------------------------------------------------
Royal Oak, Michigan, Hospital Finance Authority Revenue Bonds:
AA Aa3 1,785 (Beaumont Properties, Inc.), Series E, 6.625% due 1/01/2019 1,885
AA VMIG1+ 1,100 (William Beaumont Hospital), VRDN, Series L, 3.25% due 1/01/2027 (a) 1,100
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Saint Clair County, Michigan, Economic Revenue Refunding Bonds (Detroit Edison Co.
Project), Series AA, 6.40% due 8/01/2024 (d) 1,093
- -----------------------------------------------------------------------------------------------------------------------------------
Southgate, Michigan, Community School District, GO (c):
AAA Aaa 1,000 5.75% due 5/01/2015 1,038
AAA Aaa 1,500 5% due 5/01/2025 1,393
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Three Rivers, Michigan, Community Schools, GO, Refunding, 5% due 5/01/2023 (f) 1,863
- -----------------------------------------------------------------------------------------------------------------------------------
University of Michigan, University Revenue Bonds, VRDN, Series A (a):
A1+ VMIG1+ 1,300 (Hospital), 3.30% due 12/01/2027 1,300
A1+ VMIG1+ 100 (Medical Service Plan), 3.30% due 12/01/2027 100
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,500 Warren, Michigan, Water and Sewer Revenue Bonds, 5.25% due 11/01/2026 (f) 1,437
- -----------------------------------------------------------------------------------------------------------------------------------
Wayne Charter County, Michigan, Airport Revenue Bonds (Detroit Metropolitan--
Wayne County Airport) (b):
AAA Aaa 2,090 AMT, Series A, 5% due 12/01/2028 1,888
AAA Aaa 2,185 Series B, 5% due 12/01/2028 2,012
- -----------------------------------------------------------------------------------------------------------------------------------
NR* Aaa 2,000 Wayne Charter County, Michigan, Airport Revenue Bonds, RIB, AMT,
Series 68, 7.155% due 12/01/2017 (b)(e) 1,928
- -----------------------------------------------------------------------------------------------------------------------------------
Wayne State University, Michigan, University Revenue Refunding Bonds (c):
AAA Aaa 1,350 5.25% due 11/15/2019 1,320
AAA Aaa 3,500 5.125% due 11/15/2029 3,283
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Ypsilanti, Michigan, School District, GO, Refunding, 5.375% due 5/01/2026 (c) 1,949
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
Merrill Lynch Michigan Municipal Bond Fund July 31, 1999
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- -----------------------------------------------------------------------------------------------------------------------------------
Puerto Rico--4.1%
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NR* NR* $3,000 Puerto Rico, Revenue Bonds, RITR, 7.47% due 7/01/2027 (b)(e) $ 2,981
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost--$73,097)--101.3% 72,852
Variation Margin on Financial Futures Contracts**--0.1% 52
Liabilities in Excess of Other Assets--(1.4%) (999)
-------
Net Assets--100.0% $71,905
=======
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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,
1999.
(b) MBIA Insured.
(c) FGIC Insured.
(d) AMBAC Insured.
(e) 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, 1999.
(f) FSA Insured.
(g) FHA Insured.
(h) All or a portion of security held as collateral in connection with open
financial futures contracts.
* Not Rated.
** Financial futures contracts sold as of July 31, 1999 were as follows:
----------------------------------------------------------------------
(in Thousands)
----------------------------------------------------------------------
Number of Expiration Value
Contracts Issue Date (Notes 1a & 1b)
----------------------------------------------------------------------
150 US Treasury Bonds September 1999 $17,245
----------------------------------------------------------------------
Total Financial Futures Contracts Sold
(Total Contract Price--$17,525) $17,245
=======
----------------------------------------------------------------------
+ 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.
7
<PAGE>
Merrill Lynch Michigan Municipal Bond Fund July 31, 1999
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of July 31, 1999
<TABLE>
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$73,097,371) (Note 1a) .............. $72,851,838
Cash ........................................................................ 118,503
Receivables:
Interest .................................................................. $ 819,451
Variation margin (Note 1b) ................................................ 51,562
Beneficial interest sold .................................................. 10,288 881,301
----------
Prepaid expenses and other assets ........................................... 1,319
-----------
Total assets ................................................................ 73,852,961
-----------
- --------------------------------------------------------------------------------------------------------------------------------
Liabilities: Payables:
Securities purchased ...................................................... 1,486,995
Beneficial interest redeemed .............................................. 197,678
Dividends to shareholders (Note 1e) ....................................... 51,332
Investment adviser (Note 2) ............................................... 35,297
Distributor (Note 2) ...................................................... 26,715 1,798,017
----------
Accrued expenses and other liabilities ...................................... 149,659
-----------
Total liabilities ........................................................... 1,947,676
-----------
- --------------------------------------------------------------------------------------------------------------------------------
Net Assets: Net assets .................................................................. $71,905,285
===========
- --------------------------------------------------------------------------------------------------------------------------------
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited number of
Consist of: shares authorized ........................................................... $94,679
Class B Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized ........................................................... 547,419
Class C Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized ........................................................... 39,854
Class D Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized ........................................................... 43,531
Paid-in capital in excess of par ............................................ 73,215,778
Accumulated realized capital losses on investments--net (Note 5) ............ (2,070,756)
Unrealized appreciation on investments--net ................................. 34,780
-----------
Net assets .................................................................. $71,905,285
===========
- --------------------------------------------------------------------------------------------------------------------------------
Net Asset Value: Class A--Based on net assets of $9,384,407 and 946,786 shares
of beneficial interest outstanding .......................................... $9.91
===========
Class B--Based on net assets of $54,258,949 and 5,474,191 shares
of beneficial interest outstanding .......................................... $9.91
===========
Class C--Based on net assets of $3,950,059 and 398,541 shares
of beneficial interest outstanding .......................................... $9.91
===========
Class D--Based on net assets of $4,311,870 and 435,313 shares
of beneficial interest outstanding .......................................... $9.91
===========
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
Merrill Lynch Michigan Municipal Bond Fund July 31, 1999
FINANCIAL INFORMATION (continued)
Statement of Operations
<TABLE>
<CAPTION>
For the Year Ended
July 31, 1999
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 4,270,812
(Note 1d):
- ---------------------------------------------------------------------------------------------------------------------
Expenses: Investment advisory fees (Note 2) ................................. $ 431,736
Account maintenance and distribution fees--Class B (Note 2) ....... 298,556
Printing and shareholder reports .................................. 94,906
Accounting services (Note 2) ...................................... 84,307
Professional fees ................................................. 62,840
Transfer agent fees--Class B (Note 2) ............................. 30,373
Account maintenance and distribution fees--Class C (Note 2) ....... 22,268
Registration fees ................................................. 8,950
Custodian fees .................................................... 6,071
Pricing fees ...................................................... 5,695
Trustees' fees and expenses ....................................... 4,602
Transfer agent fees--Class A (Note 2) ............................. 4,527
Account maintenance fees--Class D (Note 2) ........................ 4,335
Transfer agent fees--Class C (Note 2) ............................. 1,902
Transfer agent fees--Class D (Note 2) ............................. 1,860
Other ............................................................. 2,466
---------
Total expenses .................................................... 1,065,394
-----------
Investment income--net ............................................ 3,205,418
-----------
- ---------------------------------------------------------------------------------------------------------------------
Realized & Unreal- Realized gain on investments--net ................................. 1,219,061
ized Gain (Loss) on Change in unrealized appreciation on investments--net ............. (4,325,424)
Investments--Net -----------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations .............. $ 99,055
===========
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
Merrill Lynch Michigan Municipal Bond Fund July 31, 1999
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year Ended July 31,
----------------------------
Increase (Decrease) in Net Assets: 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations: Investment income--net ............................................... $ 3,205,418 $ 3,575,530
Realized gain on investments--net .................................... 1,219,061 654,487
Change in unrealized appreciation on investments--net ................ (4,325,424) (746,032)
------------ ------------
Net increase in net assets resulting from operations ................. 99,055 3,483,985
------------ ------------
- ----------------------------------------------------------------------------------------------------------------------------
Dividends to Investment income--net:
Shareholders Class A ............................................................ (484,014) (592,425)
(Note 1e): Class B ............................................................ (2,386,410) (2,738,487)
Class C ............................................................ (144,265) (75,788)
Class D ............................................................ (190,729) (168,830)
------------ ------------
Net decrease in net assets resulting from dividends to shareholders .. (3,205,418) (3,575,530)
------------ ------------
- ----------------------------------------------------------------------------------------------------------------------------
Beneficial Interest Net decrease in net assets derived from beneficial interest
Transactions transactions ......................................................... (5,276,184) (1,440,463)
(Note 4): ------------ ------------
- ----------------------------------------------------------------------------------------------------------------------------
Net Assets: Total decrease in net assets ......................................... (8,382,547) (1,532,008)
Beginning of year .................................................... 80,287,832 81,819,840
------------ ------------
End of year .......................................................... $ 71,905,285 $ 80,287,832
============ ============
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
Merrill Lynch Michigan Municipal Bond Fund July 31, 1999
FINANCIAL INFORMATION (continued)
Financial Highlights
<TABLE>
<CAPTION>
Class A
The following per share data and ratios have been derived ------------------------------------------------------------
from information provided in the financial statements. For the Year Ended July 31,
------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ......... $ 10.33 $ 10.34 $ 9.92 $ 9.85 $ 9.84
Operating -------- -------- -------- -------- --------
Performance: Investment income--net ..................... .46 .50 .52 .54 .53
Realized and unrealized gain (loss) on
investments--net ........................... (.42) (.01) .42 .07 .01
-------- -------- -------- -------- --------
Total from investment operations ........... .04 .49 .94 .61 .54
-------- -------- -------- -------- --------
Less dividend from investment income--net .. (.46) (.50) (.52) (.54) (.53)
-------- -------- -------- -------- --------
Net asset value, end of year ............... $ 9.91 $ 10.33 $ 10.34 $ 9.92 $ 9.85
======== ======== ======== ======== ========
- --------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ......... .34% 4.84% 9.79% 6.25% 5.79%
Return:* ======== ======== ======== ======== ========
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to Expenses, net of reimbursement ............. .93% .80% .57% .49% .50%
Average ======== ======== ======== ======== ========
Net Assets: Expenses ................................... .93% .83% .80% .82% .88%
======== ======== ======== ======== ========
Investment income--net ..................... 4.51% 4.81% 5.21% 5.35% 5.57%
======== ======== ======== ======== ========
- --------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of year (in thousands) ..... $ 9,384 $ 11,762 $ 11,841 $ 11,468 $ 11,838
Data: ======== ======== ======== ======== ========
Portfolio turnover ......................... 129.08% 65.39% 35.09% 69.34% 123.61%
======== ======== ======== ======== ========
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total investment returns exclude the effects of sales charges.
See Notes to Financial Statements.
11
<PAGE>
Merrill Lynch Michigan Municipal Bond Fund July 31, 1999
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
<TABLE>
<CAPTION>
Class B
The following per share data and ratios have been derived ------------------------------------------------------------
from information provided in the financial statements. For the Year Ended July 31,
------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ......... $ 10.33 $ 10.34 $ 9.92 $ 9.85 $ 9.84
Operating -------- -------- -------- -------- --------
Performance: Investment income--net ..................... .41 .45 .47 .49 .49
Realized and unrealized gain (loss) on
investments--net ........................... (.42) (.01) .42 .07 .01
-------- -------- -------- -------- --------
Total from investment operations ........... (.01) .44 .89 .56 .50
-------- -------- -------- -------- --------
Less dividend from investment income--net .. (.41) (.45) (.47) (.49) (.49)
-------- -------- -------- -------- --------
Net asset value, end of year ............... $ 9.91 $ 10.33 $ 10.34 $ 9.92 $ 9.85
======== ======== ======== ======== ========
- --------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ......... (.17%) 4.31% 9.23% 5.70% 5.25%
Return:* ======== ======== ======== ======== ========
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to Expenses, net of reimbursement ............. 1.44% 1.31% 1.08% 1.00% 1.02%
Average ======== ======== ======== ======== ========
Net Assets: Expenses ................................... 1.44% 1.34% 1.31% 1.33% 1.40%
======== ======== ======== ======== ========
Investment income--net ..................... 4.00% 4.30% 4.70% 4.84% 5.05%
======== ======== ======== ======== ========
- --------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of year (in thousands) ..... $ 54,259 $ 61,918 $ 65,166 $ 67,770 $ 60,699
Data: ======== ======== ======== ======== ========
Portfolio turnover ......................... 129.08% 65.39% 35.09% 69.34% 123.61%
======== ======== ======== ======== ========
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total investment returns exclude the effects of sales charges.
See Notes to Financial Statements.
12
<PAGE>
Merrill Lynch Michigan Municipal Bond Fund July 31, 1999
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
<TABLE>
<CAPTION>
Class C
------------------------------------------------------------
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. For the Year Ended July 31, 1994+ to
----------------------------------------------- July 31,
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ........ $ 10.32 $ 10.33 $ 9.92 $ 9.85 $ 9.44
Operating -------- -------- -------- -------- --------
Performance: Investment income--net ...................... .40 .43 .46 .48 .37
Realized and unrealized gain (loss) on
investments--net ............................ (.41) (.01) .41 .07 .41
-------- -------- -------- -------- --------
Total from investment operations ............ (.01) .42 .87 .55 .78
-------- -------- -------- -------- --------
Less dividends from investment income--net .. (.40) (.43) (.46) (.48) (.37)
-------- -------- -------- -------- --------
Net asset value, end of period .............. $ 9.91 $ 10.32 $ 10.33 $ 9.92 $ 9.85
======== ======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share .......... (.17%) 4.20% 9.01% 5.59% 8.39%++
Return:** ======== ======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to Expenses, net of reimbursement .............. 1.55% 1.42% 1.18% 1.11% 1.16%*
Average ======== ======== ======== ======== ========
Net Assets: Expenses .................................... 1.55% 1.45% 1.41% 1.43% 1.51%*
======== ======== ======== ======== ========
Investment income--net ...................... 3.89% 4.18% 4.60% 4.73% 4.91%*
======== ======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) .... $ 3,950 $ 2,802 $ 1,319 $ 1,871 $ 839
Data: ======== ======== ======== ======== ========
Portfolio turnover .......................... 129.08% 65.39% 35.09% 69.34% 123.61%
======== ======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Commencement of operations.
++ Aggregate total investment return.
See Notes to Financial Statements.
13
<PAGE>
Merrill Lynch Michigan Municipal Bond Fund July 31, 1999
FINANCIAL INFORMATION (concluded)
Financial Highlights (concluded)
<TABLE>
<CAPTION>
Class D
------------------------------------------------------------
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. For the Year Ended July 31, 1994+ to
----------------------------------------------- July 31,
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ........ $ 10.32 $ 10.33 $ 9.91 $ 9.85 $ 9.44
Operating -------- -------- -------- -------- --------
Performance: Investment income--net ...................... .45 .49 .51 .53 .41
Realized and unrealized gain (loss) on
investments--net ............................ (.41) (.01) .42 .06 .41
-------- -------- -------- -------- --------
Total from investment operations ............ .04 .48 .93 .59 .82
-------- -------- -------- -------- --------
Less dividends from investment income--net .. (.45) (.49) (.51) (.53) (.41)
-------- -------- -------- -------- --------
Net asset value, end of period .............. $ 9.91 $ 10.32 $ 10.33 $ 9.91 $ 9.85
======== ======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share .......... .34% 4.74% 9.69% 6.04% 8.84%++
Return:** ======== ======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to Expenses, net of reimbursement .............. 1.04% .90% .68% .59% .63%*
Average ======== ======== ======== ======== ========
Net Assets: Expenses .................................... 1.04% .93% .90% .91% .98%*
======== ======== ======== ======== ========
Investment income--net ...................... 4.40% 4.71% 5.11% 5.24% 5.46%*
======== ======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) .... $ 4,312 $ 3,806 $ 3,494 $ 1,842 $ 1,045
Data: ======== ======== ======== ======== ========
Portfolio turnover .......................... 129.08% 65.39% 35.09% 69.34% 123.61%
======== ======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Commencement of operations.
++ Aggregate total investment return.
See Notes to Financial Statements.
14
<PAGE>
Merrill Lynch Michigan Municipal Bond Fund July 31, 1999
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Michigan Municipal Bond Fund (the "Fund") is part of Merrill Lynch
Multi-State Municipal Series Trust (the "Trust"). The Fund is registered under
the Investment Company Act of 1940 as a non-diversified, open-end management
investment company. The Fund's financial statements are prepared in accordance
with generally accepted accounting principles, which may require the use of
management accruals and estimates. 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.
o Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such futures contracts for the purpose of hedging the
market risk on existing 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) 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.
15
<PAGE>
Merrill Lynch Michigan Municipal Bond Fund July 31, 1999
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 has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds Distributor ("MLFD" or
the "Distributor"), a division of Princeton Funds Distributor, Inc. ("PFD"),
which is a wholly-owned subsidiary of Merrill Lynch Group, Inc.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee
based upon the average daily value of the Fund's net assets at the following
annual rates: .55% of the Fund's average daily net assets not exceeding $500
million; .525% of average daily net assets in excess of $500 million but not
exceeding $1 billion; and .50% of average daily net assets in excess of $1
billion.
Pursuant to the Distribution Plans adopted by the Fund in accordance with Rule
12b-1 under the Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are accrued daily
and paid monthly at annual rates based upon the average daily net assets of the
shares as follows:
- -------------------------------------------------------------------------------
Account
Maintenance Distribution
Fee Fee
- -------------------------------------------------------------------------------
Class B ........................................ .25% .25%
Class C ........................................ .25% .35%
Class D ........................................ .10% --
- -------------------------------------------------------------------------------
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., also provides account
maintenance and distribution services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class B, Class C and Class D shareholders. The ongoing
distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B and Class C
shareholders.
For the year ended July 31, 1999, 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 .............................................. $237 $ 2,202
Class D .............................................. $675 $17,507
- -------------------------------------------------------------------------------
For the year ended July 31, 1999, MLPF&S received contingent deferred sales
charges of $66,089 and $2,977 relating to transactions in Class B and Class C
Shares, respectively.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co., is
the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or directors of
FAM, PSI, FDS, PFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended July 31, 1999 were $91,900,234 and $94,305,690, respectively.
Net realized gains for the year ended July 31, 1999 and net unrealized gains
(losses) as of July 31, 1999 were as follows:
- -------------------------------------------------------------------------------
Realized Unrealized
Gains Gains (Losses)
- -------------------------------------------------------------------------------
Long-term investments ........................... $ 1,179,671 $ (245,533)
Financial futures contracts ..................... 39,390 280,313
------------ ------------
Total ........................................... $ 1,219,061 $ 34,780
============ ============
- -------------------------------------------------------------------------------
As of July 31, 1999, net unrealized depreciation for Federal income tax purposes
aggregated $245,533, of which $1,445,126 is related to appreciated securities
and $1,690,659 is related to depreciated securities. The aggregate cost of
investments at July 31, 1999 for Federal income tax purposes was $73,097,371.
16
<PAGE>
Merrill Lynch Michigan Municipal Bond Fund July 31, 1999
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest transactions was
$5,276,184 and $1,440,463 for the years ended July 31, 1999 and July 31, 1998,
respectively.
Transactions in shares of beneficial interest for each class were as follows:
- -------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .................................... 180,075 $ 1,866,875
Shares issued to shareholders
in reinvestment of dividends ................... 24,067 247,826
------------ ------------
Total issued ................................... 204,142 2,114,701
Shares redeemed ................................ (396,455) (4,084,167)
------------ ------------
Net decrease ................................... (192,313) $ (1,969,466)
============ ============
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .................................... 241,289 $ 2,488,207
Shares issued to shareholders
in reinvestment of dividends ................... 29,942 308,701
------------ ------------
Total issued ................................... 271,231 2,796,908
Shares redeemed ................................ (277,717) (2,866,081)
------------ ------------
Net decrease ................................... (6,486) $ (69,173)
============ ============
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .................................... 628,886 $ 6,491,705
Shares issued to shareholders
in reinvestment of dividends ................... 84,862 873,290
------------ ------------
Total issued ................................... 713,748 7,364,995
Automatic conversion
of shares ...................................... (11,568) (117,500)
Shares redeemed ................................ (1,224,642) (12,574,959)
------------ ------------
Net decrease ................................... (522,462) $ (5,327,464)
============ ============
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .................................... 810,906 $ 8,356,107
Shares issued to shareholders
in reinvestment of dividends ................... 95,226 981,498
------------ ------------
Total issued ................................... 906,132 9,337,605
Automatic conversion
of shares ...................................... (727) (7,562)
Shares redeemed ................................ (1,213,594) (12,500,841)
------------ ------------
Net decrease ................................... (308,189) $ (3,170,798)
============ ============
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .................................... 194,056 $ 2,009,738
Shares issued to shareholders
in reinvestment of dividends ................... 10,706 110,045
------------ ------------
Total issued ................................... 204,762 2,119,783
Shares redeemed ................................ (77,674) (795,204)
------------ ------------
Net increase ................................... 127,088 $ 1,324,579
============ ============
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .................................... 165,102 $ 1,701,603
Shares issued to shareholders
in reinvestment of dividends ................... 5,574 57,489
------------ ------------
Total issued ................................... 170,676 1,759,092
Shares redeemed ................................ (26,858) (276,788)
------------ ------------
Net increase ................................... 143,818 $ 1,482,304
============ ============
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .................................... 135,821 $ 1,410,405
Automatic conversion
of shares ...................................... 11,575 117,500
Shares issued to shareholders
in reinvestment of dividends ................... 12,826 131,764
------------ ------------
Total issued ................................... 160,222 1,659,669
Shares redeemed ................................ (93,734) (963,502)
------------ ------------
Net increase ................................... 66,488 $ 696,167
============ ============
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .................................... 68,559 $ 708,322
Automatic conversion
of shares ...................................... 727 7,562
Shares issued to shareholders
in reinvestment of dividends ................... 10,438 107,539
------------ ------------
Total issued ................................... 79,724 823,423
Shares redeemed ................................ (49,201) (506,219)
------------ ------------
Net increase ................................... 30,523 $ 317,204
============ ============
- --------------------------------------------------------------------------------
5. Capital Loss Carryforward:
At July 31, 1999, the Fund had a capital loss carryforward of approximately
$1,165,000, of which $708,000 expires in 2004 and $457,000 expires in 2005. This
amount will be available to offset like amounts of any future taxable gains.
17
<PAGE>
Merrill Lynch Michigan Municipal Bond Fund July 31, 1999
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, 1999, 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 five-year period then ended.
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,
1999 by correspondence with the custodian and brokers. 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, 1999, the results of its operations, the changes in its net
assets, and the financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
September 16, 1999
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, 1999 qualify
as tax-exempt interest dividends for Federal income tax purposes.
Additionally, there were no capital gains distributions made by the Fund during
the year.
Please retain this information for your records.
18
<PAGE>
Merrill Lynch Michigan Municipal Bond Fund July 31, 1999
OFFICERS AND TRUSTEES
Terry K. Glenn, President and Trustee
James H. Bodurtha, Trustee
Herbert I. London, Trustee
Robert R. Martin, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Arthur Zeikel, Trustee
Vincent R. Giordano, Senior Vice President
Kenneth A. Jacob, Vice President
Fred K. Stuebe, Vice President
Donald C. Burke, Vice President and Treasurer
Alice A. Pellegrino, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
19
<PAGE>
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--7/99
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