MERRILL LYNCH
MASSACHUSETTS
MUNICIPAL
BOND FUND
FUND LOGO
Annual Report
July 31, 1996
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
Roberto Roffo, Vice President
Fred K. Stuebe, Vice President
Gerald M. Richard, Treasurer
Jerry Weiss, Secretary
<PAGE>
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
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 Massachusetts
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, NJ
08543-9011
TO OUR SHAREHOLDERS
<PAGE>
The Municipal Market Environment
Municipal bond yields rose dramatically during the six-month period
ended July 31, 1996. Investors became increasingly alarmed that
earlier forecasts of continued moderate growth were overly
optimistic. As indications of stronger growth were released,
particularly the strong employment reports released beginning in
March, fears of associated inflationary pressures mounted and yields
rose in response. By May and June, long-term municipal bond yields
rose into the 6.25%--6.30% range.
However, in early July the combination of the Federal Reserve Board
suggesting that growth was expected to slow later in 1996 and a
temporary stock market correction allowed municipal bond yields to
fall as investors scrambled to purchase relatively scarce
securities. As measured by the Bond Buyer Revenue Bond Index, long-
term, A-rated uninsured tax-exempt bonds yielded 6.02% at July 31,
1996, an increase of over 30 basis points (0.30%) in the last six
months. Long-term US Treasury bond yields rose significantly over
the same period. By July 31, 1996, yields on US Treasury bonds
increased almost 100 basis points to end the six-month period at
6.97%.
The municipal bond market's recent outperformance as compared to its
taxable counterpart was largely the result of two principal factors.
First, much of the concern in the tax-exempt market regarding the
potential loss of the inherent tax-advantage of the municipal bonds
dissipated. For much of 1995, various tax proposals, such as the
flat tax or national sales tax, were put forward either to reduce
the national debt or reform the current tax system. Most of these
proposals would have severely limited the tax advantages enjoyed by
the municipal bond market. However, in February 1996, the Kemp
Commission released its findings regarding various tax reform
proposals. While noting that numerous changes should be made, no
mention of curtailing or stopping municipal bonds' current favored
tax status was made.
The second major factor leading to the municipal bond market's
recent outperformance was the return of a more favorable technical
environment. The rate of increase in new bond issuance recently
slowed. Over the last 12 months, approximately $175 billion in long-
term municipal securities were issued, an increase of over 27% as
compared to the same period a year earlier. Much of this increase
was the result of issuers seeking to refinance their existing higher-
couponed debt as interest rates declined in 1995 and early 1996. As
interest rates rose, these financings became increasingly
economically impractical and issuance declined. Over the last six
months, less than $70 billion in long-term tax-exempt securities
were underwritten, an increase of 20% versus the comparable period a
year earlier. Only $43 billion in tax-exempt securities were issued
in the last three months, a total essentially unchanged from the
comparable quarter in 1995. In July 1996, less than $10 billion in
long-term municipal bonds were issued, representing the lowest
issuance for the month of July since 1990.
<PAGE>
At the same time investor demand remained consistently strong. With
nominal new-issue yields above 6%, retail investor interest was
steady. Additionally, investors received over $50 billion this June
and July in assets derived from coupon income, bond maturities and
proceeds from early redemptions. Annual new bond issuance has
declined in recent years and is expected to remain below levels seen
in the early 1990s. Consequently, as the higher-coupon bonds issued
in the early-to-mid 1980s were redeemed at their first optional call
dates, the total number of outstanding tax-exempt bonds has
declined. This combination of a declining net supply and significant
amounts of assets helped maintain investor demand in recent months.
It is unlikely that the municipal bond market will continue to
significantly outperform US Treasury securities in the near future.
The tax-exempt bond market's recent performance led to the yield
ratio between long-term taxable and tax-exempt securities falling
from in excess of 90% to approximately 85%. While historically still
very attractive, some institutional investors, particularly short-
term traders, began to view the tax-exempt bond market's recent
outperformance as an opportunity to sell a relatively expensive
asset. However, to the long-term investor, such a sale would
represent the loss of an attractively priced asset which may not be
easily replaced given the relative scarcity of municipal bonds under
present supply conditions.
Looking ahead, no clear consensus for the direction of interest
rates currently exists. Perhaps, the primary focus going forward
will be the extent to which the increase in interest rates seen thus
far in 1996 will negatively impact future economic growth. Should
growth slow in the interest rate-sensitive sectors of the economy,
like housing, auto, and consumer spending, as many economists assert
is likely, then bond yields are likely to decline. Under such a
scenario, the municipal bond market's performance is likely to
closely mirror that of the US Treasury bond market.
Fiscal Year in Review
Over the fiscal year, Merrill Lynch Massachusetts Municipal Bond
Fund slowly shifted away from the neutral posture adopted in late
1995 and early 1996 toward a more defensive structuring. This shift
largely involved the sale of interest rate-sensitive issues and the
corresponding purchase of higher-couponed, more income-oriented
securities. We also periodically increased the Fund's cash reserve
position to help preserve its principal valuation during periods of
significant interest rate volatility. However, we were reluctant to
raise significant cash reserves or to maintain these reserves for an
extended period of time. While tax-exempt interest rates generally
rose over the past six months, there were a number of episodes of
declining rates. Continuously held large cash reserves would impede
the Fund from recouping the short-term price appreciation associated
with these episodes. More important, raising large cash reserves
would have a significant negative impact upon the Fund's yields.
<PAGE>
New-issue supply in Massachusetts was similar to the national
issuance over the past six months. Approximately $2 billion in long-
term municipal securities were issued by Massachusetts
municipalities during the six months ended July 31, 1996. However,
much of this issuance was concentrated in a few larger issues which
has somewhat inhibited our ability to diversify the Fund's holdings.
In addition, given the strong investor demand as we noted, much of
the Massachusetts new bond issuance was structured in favor of
individual retail investors. The resultant current coupon issues
were unattractive given the Fund's current defensive strategy. The
Fund's present strategy, as well as the more aggressive posture it
maintained in late 1995 and early 1996, generated attractive total
returns for the year ended July 31, 1996. Despite its present higher-
than-normal cash reserve position, the Fund continued to provide
shareholders with attractive yields for the 12 months ended July 31,
1996.
Looking forward for the remainder of 1996, the Fund expects to
maintain its present defensive posture until a more clear consensus
regarding the near-term direction of interest rates can be
established. This strategy could result in some potential limiting
of capital appreciation should tax-exempt bond yields fall suddenly
and dramatically. However, the Fund's present posture should enable
us to better preserve much of its principal valuation and allow us
to maintain its attractive current dividend should municipal bond
yields either remain stable or resume their decline.
In Conclusion
We appreciate your ongoing interest in Merrill Lynch Massachusetts
Municipal Bond Fund, and we look forward to serving your investment
needs in the months and years to come.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
<PAGE>
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Fred K. Stuebe)
Fred K. Stuebe
Vice President and Portfolio Manager
September 9, 1996
We are pleased to announce that Fred K. Stuebe is responsible for
the day-to-day management of Merrill Lynch Massachusetts Municipal
Bond Fund. Mr. Stuebe has been employed by Merrill Lynch Asset
Management, L.P. (an affiliate of the Fund's Investment Adviser)
since 1989 as Vice President and Portfolio Manager.
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end load)
of 4% and bear no ongoing distribution or account maintenance fees.
Class A Shares are available only to eligible investors.
* 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.)
<PAGE>
* Class C Shares are subject to a distribution fee of 0.35% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 4% and an
account maintenance fee of 0.10% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Dividends paid to each class
of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month
7/31/96 4/30/96 7/31/95 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $10.60 $10.50 $10.46 +1.34% +0.95%
Class B Shares* 10.60 10.50 10.46 +1.34 +0.95
Class C Shares* 10.60 10.50 10.46 +1.34 +0.95
Class D Shares* 10.61 10.51 10.47 +1.34 +0.95
Class A Shares--Total Return* +6.78(1) +2.28(2)
Class B Shares--Total Return* +6.23(3) +2.15(4)
Class C Shares--Total Return* +6.12(5) +2.12(6)
Class D Shares--Total Return* +6.67(7) +2.25(8)
Class A Shares--Standardized 30-day Yield 4.83%
Class B Shares--Standardized 30-day Yield 4.52%
Class C Shares--Standardized 30-day Yield 4.42%
Class D Shares--Standardized 30-day Yield 4.73%
<PAGE>
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
(1)Percent change includes reinvestment of $0.556 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.136 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.502 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.123 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.491 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.120 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.546 per share ordinary
income dividends.
(8)Percent change includes reinvestment of $0.134 per share ordinary
income dividends.
</TABLE>
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment--Class A Shares and Class B Shares
A line graph depicting the growth of an investment in the Fund's
Class A Shares and Class B Shares compared to growth of an
investment in the Lehman Brothers Municipal Bond Index. Beginning
and ending values are:
2/28/92** 7/96
ML Massachusetts Municipal Bond Fund++--
Class A Shares* $ 9,600 $13,174
ML Massachusetts Municipal Bond Fund++--
Class B Shares* $10,000 $13,420
Lehman Brothers Municipal Bond
Index++++ $10,000 $13,634
Total Return Based on a $10,000 Investment--Class C Shares and Class D Shares
A line graph depicting the growth of an investment in the Fund's
Class C Shares and Class D Shares compared to growth of an
investment in the Lehman Brothers Municipal Bond Index. Beginning
and ending values are:
10/21/94** 7/96
ML Massachusetts Municipal Bond Fund++--
Class C Shares* $10,000 $11,475
ML Massachusetts Municipal Bond Fund++--
Class D Shares* $ 9,600 $11,131
Lehman Brothers Municipal Bond
Index++++ $10,000 $11,840
<PAGE>
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of Operations.
++ML Massachusetts Municipal Bond Fund invests primarily in long-
term investment-grade obligations issued by or on behalf of the
Commonwealth of Massachusetts, its political subdivisions, agencies
and instrumentalities and obligations of other qualifying issuers.
++++This unmanaged Index consists of long-term revenue bonds,
prerefunded bonds, general obligation bonds and insured bonds.
Past performance is not predictive of future performance.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/96 +6.05% +1.81%
Inception (2/28/92)
through 6/30/96 +7.27 +6.27
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/96 +5.50% +1.50%
Inception (2/28/92)
through 6/30/96 +6.73 +6.73
[FN]
*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**
<PAGE>
Class C Shares*
Year Ended 6/30/96 +5.40% +4.40%
Inception (10/21/94)
through 6/30/96 +7.67 +7.67
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 6/30/96 +5.94% +1.70%
Inception (10/21/94)
through 6/30/96 +8.31 +5.73
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
PERFORMANCE DATA (concluded)
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
2/28/92--12/31/92 $10.00 $10.46 -- $0.542 +10.24%
1993 10.46 11.22 $0.103 0.652 +14.79
1994 11.22 9.84 -- 0.571 - 7.33
1995 9.84 11.02 -- 0.555 +18.03
1/1/96--7/31/96 11.02 10.60 -- 0.310 - 0.85
------ ------
Total $0.103 Total $2.630
Cumulative total return as of 7/31/96: +37.24%**
</TABLE>
<PAGE>
<TABLE>
Performance Summary--Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change***
<S> <C> <C> <C> <C> <C>
2/28/92--12/31/92 $10.00 $10.46 -- $0.498 + 9.77%
1993 10.46 11.22 $0.103 0.596 +14.21
1994 11.22 9.84 -- 0.518 - 7.80
1995 9.84 11.02 -- 0.501 +17.44
1/1/96--7/31/96 11.02 10.60 -- 0.280 - 1.14
------ ------
Total $0.103 Total $2.393
Cumulative total return as of 7/31/96: +34.20%***
</TABLE>
<TABLE>
Performance Summary--Class C Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change***
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $10.03 $ 9.84 -- $0.088 - 1.00%
1995 9.84 11.01 -- 0.490 +17.20
1/1/96--7/31/96 11.01 10.60 -- 0.274 - 1.11
------
Total $0.852
Cumulative total return as of 7/31/96: +14.75%***
</TABLE>
<TABLE>
Performance Summary--Class D Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $10.03 $ 9.84 -- $0.103 - 0.85%
1995 9.84 11.02 -- 0.545 +17.91
1/1/96--7/31/96 11.02 10.61 -- 0.304 - 0.81
------
Total $0.952
Cumulative total return as of 7/31/96: +15.96%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date, and do not
include sales charge; results would be lower if sales charge was
included.
***Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
<PAGE>
PORTFOLIO ABBREVIATIONS
To simplify the listings of Merrill Lynch Massachusetts 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 the right.
AMT Alternative Minimum Tax (subject to)
CARS Complementary Auction Rate Securities
GO General Obligation Bonds
HFA Housing Finance Agency
PCR Pollution Control Revenue Bonds
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Massachusetts--94.4%
<S> <S> <C> <S> <C>
BBB Baa1 $ 865 Boston, Massachusetts, Industrial Development Financing Authority,
Sewer Facility Revenue Bonds (Harbor Electric Energy Company Project),
AMT, 7.375% due 5/15/2015 $ 923
A1+ VMIG1++ 3,300 Boston, Massachusetts, Water and Sewer Commission Revenue Bonds, VRDN,
Series A, 3.25% due 11/01/2024 (a) 3,300
Massachusetts Bay Transportation Authority Revenue Bonds
(Massachusetts General Transportation Systems), Series A:
A+ A1 1,000 7% due 3/01/2021 1,158
A+ A1 1,750 Refunding, UT, 7% due 3/01/2011 1,996
<PAGE>
AAA Aaa 1,000 Massachusetts Education Loan Authority, Educational Loan Revenue Bonds,
AMT, Issue E, Series A, 7.375% due 1/01/2012 (b) 1,084
Massachusetts State Health and Educational Facilities Authority
Revenue Bonds:
AAA Aaa 3,030 (Boston College), Series J, 6.625% due 7/01/2021 (e) 3,239
A A1 1,000 (Brigham and Women's Hospital), Series C, 7% due 6/01/2018 1,060
A A1 2,520 (Brigham and Women's Hospital), Series C, 6.75% due 6/01/2021 2,649
A1+ VMIG1++ 100 (Capital Asset Program), VRDN, Series C, 3.35% due 7/01/2005 (a)(d) 100
A1+ VMIG1++ 200 (Capital Asset Program), VRDN, Series D, 3.45% due 1/01/2035 (a)(d) 200
AAA Aaa 5,150 (Medical Center of Central Massachusetts), CARS, Series B, 9.22% due
6/23/2022 (b)(f) 5,871
AAA Aaa 2,500 (Newton Wellesley Hospital), Series D, 7% due 7/01/2015 (d) 2,710
AAA Aaa 1,000 (Northeastern University), Series E, 6.55% due 10/01/2022 (d) 1,074
NR* B 1,000 Refunding (New England Memorial Hospital), Series B, 6.125% due 7/01/2013 800
AAA Aaa 1,000 Refunding (Stonehill College), Series E, 6.60% due 7/01/2020 (d) 1,076
NR* A 2,335 Refunding (Wheaton College), Series C, 5.25% due 7/01/2019 2,154
Massachusetts State, HFA, Revenue Bonds (Residential Development) (c):
AAA Aaa 2,000 Series C, 6.875% due 11/15/2011 2,105
AAA Aaa 5,000 Series C, 6.90% due 11/15/2021 5,222
AAA Aaa 1,000 Series D, Section 8, 6.875% due 11/15/2021 1,043
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Massachusetts (concluded)
<S> <S> <C> <S> <C>
Massachusetts State, HFA, S/F Housing Revenue Bonds, AMT:
A+ Aa $1,500 Series 38, 7.20% due 12/01/2026 $ 1,591
A+ Aa 2,000 Series 40, 6.65% due 12/01/2027 2,053
AAA Aaa 2,000 Series 48, 6.35% due 6/01/2026 (d) 2,015
NR* VMIG1++ 1,400 Massachusetts State Industrial Finance Agency, PCR, Refunding (North
East Power Company), VRDN, 3.40% due 10/01/2022 (a) 1,400
Massachusetts State Industrial Finance Agency Revenue Bonds:
AAA Aaa 1,000 (Babson College), Series A, 6.50% due 10/01/2022 (d) 1,060
AAA Aaa 3,175 (Brandeis University), Series C, 6.80% due 10/01/2019 (d) 3,393
A+ A1 1,795 Refunding (Holy Cross College-II), 6.375% due 11/01/2002 (g) 1,980
A1+ VMIG1++ 100 Massachusetts State Municipal Wholesale Electric Company, Power Supply
System Revenue Bonds, VRDN, Series C, 3.35% due 7/01/2019 (a) 100
Massachusetts State Water Pollution Abatement Trust Revenue Bonds,
Series A:
A+ Aa 1,000 MWRA Loan Program, 5% due 8/01/2015 906
AA- Aa 1,680 Secured Loan Program, 6.375% due 2/01/2015 1,772
<PAGE>
A A 6,000 Massachusetts State Water Resource Authority Revenue Bonds, Series A,
6.50% due 7/15/2019 6,497
AAA Aaa 1,000 South Essex, Massachusetts, Sewer District, GO, Refunding, Series A,
5.25% due 6/15/2024 (d) 926
AAA Aaa 1,210 Southern Berkshire, Massachusetts, Regional School District Revenue Bonds,
UT, 7% due 4/15/2003 (d) (g) 1,362
NR* Baa 1,500 Springfield, Massachusetts, School Project Loan, GO, Series B, 7.10% due
9/01/2011 1,613
Puerto Rico--3.9%
A Baa1 3,000 Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue
Refunding Bonds, 5% due 7/01/2019 2,642
Total Investments (Cost--$64,606)--98.3% 67,074
Other Assets Less Liabilities--1.7% 1,156
-------
Net Assets--100.0% $68,230
=======
<FN>
(a)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at July 31, 1996.
(b)AMBAC Insured.
(c)FNMA Collateralized.
(d)MBIA Insured.
(e)FGIC Insured.
(f)The interest rate is subject to change periodcally and inversely
based upon prevailing market rates. The interest rate shown is the
rate in effect at July 31, 1996.
(g)Prerefunded.
*Not Rated.
++Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<PAGE>
<TABLE>
Statement of Assets and Liabilities as of July 31, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$64,605,670) (Note 1a) $ 67,073,999
Cash 193,175
Receivables:
Interest $ 757,260
Securities sold 587,962
Beneficial interest sold 64,202 1,409,424
------------
Prepaid expenses and other assets (Note 1e) 7,410
Deferred organization expenses (Note 1e) 5,938
------------
Total assets 68,689,946
------------
Liabilities: Payables:
Beneficial interest redeemed 235,230
Dividends to shareholders (Note 1f) 80,546
Investment adviser (Note 2) 31,841
Distributor (Note 2) 26,145 373,762
------------
Accrued expenses and other liabilities 85,705
------------
Total liabilities 459,467
------------
Net Assets: Net assets $ 68,230,479
============
Net Assets Class A Shares of beneficial interest, $.10 par value,
Consist of: unlimited number of shares authorized $ 55,518
Class B Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 564,551
Class C Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 11,179
Class D Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 12,161
Paid-in capital in excess of par 66,813,179
Accumulated realized capital losses on investments--net (Note 5) (1,621,661)
Accumulated distribution in excess of realized capital
gains--net (Note 1f) (72,777)
Unrealized appreciation on investments--net 2,468,329
------------
Net assets $ 68,230,479
============
<PAGE>
Net Asset Value: Class A--Based on net assets of $5,887,586 and 555,183
shares of beneficial interest outstanding $ 10.60
============
Class B--Based on net assets of $59,868,201 and 5,645,511
shares of beneficial interest outstanding $ 10.60
============
Class C--Based on net assets of $1,184,666 and 111,793
shares of beneficial interest outstanding $ 10.60
============
Class D--Based on net assets of $1,290,026 and 121,614
shares of beneficial interest outstanding $ 10.61
============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended
July 31, 1996
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 4,499,849
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 406,646
Account maintenance and distribution fees--Class B (Note 2) 328,420
Professional fees 64,337
Accounting services (Note 2) 38,780
Transfer agent fees--Class B (Note 2) 38,290
Printing and shareholder reports 35,515
Registration fees (Note 1e) 17,968
Amortization of organization expenses (Note 1e) 10,399
Pricing fees 4,841
Account maintenance and distribution fees--Class C (Note 2) 4,692
Custodian fees 4,426
Trustees' fees and expenses 3,731
Transfer agent fees--Class A (Note 2) 3,129
Account maintenance fees--Class D (Note 2) 1,002
Transfer agent fees--Class D (Note 2) 482
Transfer agent fees--Class C (Note 2) 465
Other 2,156
------------
Total expenses 965,279
------------
Investment income--net 3,534,570
------------
Realized & Realized loss on investments--net (120,826)
Unrealized Change in unrealized appreciation on investments--net 1,137,298
Gain (Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 4,551,042
(Notes 1b, 1d & 3): ============
<PAGE>
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended July 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 3,534,570 $ 3,914,760
Realized loss on investments--net (120,826) (1,500,843)
Change in unrealized appreciation on investments--net 1,137,298 989,418
------------ ------------
Net increase in net assets resulting from operations 4,551,042 3,403,335
------------ ------------
Dividends to Investment income--net:
Shareholders Class A (338,974) (398,237)
(Note 1f): Class B (3,107,959) (3,492,562)
Class C (36,158) (7,152)
Class D (51,479) (16,809)
------------ ------------
Net decrease in net assets resulting from dividends to
shareholders (3,534,570) (3,914,760)
------------ ------------
Beneficial Interest Net decrease in net assets derived from beneficial
Transactions interest transactions (7,525,610) (9,552,246)
(Note 4): ------------ ------------
Net Assets: Total decrease in net assets (6,509,138) (10,063,671)
Beginning of year 74,739,617 84,803,288
------------ ------------
End of year $ 68,230,479 $ 74,739,617
============ ============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
Class A
<PAGE>
For the
Period
The following per share data and ratios have been derived Feb. 28,
from information provided in the financial statements. 1992++ to
For the Year Ended July 31, July 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.46 $ 10.48 $ 11.07 $ 10.68 $ 10.00
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .56 .56 .58 .63 .25
Realized and unrealized gain (loss) on
investments--net .14 (.02) (.43) .42 .68
-------- -------- -------- -------- --------
Total from investment operations .70 .54 .15 1.05 .93
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.56) (.56) (.58) (.63) (.25)
Realized gain on investments--net -- -- (.15) (.03) --
In excess of realized gain on
investments--net -- -- (.01) -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.56) (.56) (.74) (.66) (.25)
-------- -------- -------- -------- --------
Net asset value, end of period $ 10.60 $ 10.46 $ 10.48 $ 11.07 $ 10.68
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 6.78% 5.35% 1.26% 10.08% 9.44%+++
Return:** ======== ======== ======== ======== ========
Ratios to Expenses, net of reimbursement .84% .88% .62% .42% .12%*
Average ======== ======== ======== ======== ========
Net Assets: Expenses .84% .91% .85% .95% 1.16%*
======== ======== ======== ======== ========
Investment income--net 5.23% 5.42% 5.33% 5.75% 5.82%*
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 5,887 $ 6,630 $ 8,367 $ 7,093 $ 4,828
Data: ======== ======== ======== ======== ========
Portfolio turnover 56.05% 89.62% 72.13% 39.37% 18.86%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<PAGE>
<TABLE>
Financial Highlights (continued)
<CAPTION>
Class B
For the
Period
The following per share data and ratios have been derived Feb. 28,
from information provided in the financial statements. 1992++ to
For the Year Ended July 31, July 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.46 $ 10.48 $ 11.07 $ 10.68 $ 10.00
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .51 .50 .53 .57 .23
Realized and unrealized gain (loss) on
investments--net .14 (.02) (.43) .42 .68
-------- -------- -------- -------- --------
Total from investment operations .65 .48 .10 .99 .91
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.51) (.50) (.53) (.57) (.23)
Realized gain on investments--net -- -- (.15) (.03) --
In excess of realized gain on
investments--net -- -- (.01) -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.51) (.50) (.69) (.60) (.23)
-------- -------- -------- -------- --------
Net asset value, end of period $ 10.60 $ 10.46 $ 10.48 $ 11.07 $ 10.68
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 6.23% 4.82% .75% 9.53% 9.22%+++
Return:** ======== ======== ======== ======== ========
Ratios to Expenses, net of reimbursement 1.35% 1.39% 1.12% .93% .62%*
Average ======== ======== ======== ======== ========
Net Assets: Expenses 1.35% 1.42% 1.36% 1.45% 1.68%*
======== ======== ======== ======== ========
Investment income--net 4.72% 4.91% 4.83% 5.24% 5.32%*
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands). $ 59,868 $ 66,927 $ 76,436 $ 71,429 $ 38,947
Data: ======== ======== ======== ======== ========
Portfolio turnover 56.05% 89.62% 72.13% 39.37% 18.86%
======== ======== ======== ======== ========
<PAGE>
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class C Class D
For the For the
For the Period For the Period
The following per share data and ratios have been derived Year Oct. 21, Year Oct. 21,
from information provided in the financial statements. Ended 1994++ to Ended 1994++ to
July 31, July 31, July 31, July 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1996 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.46 $ 10.03 $ 10.47 $ 10.03
Operating -------- -------- -------- --------
Performance: Investment income--net .49 .37 .55 .42
Realized and unrealized gain on investments--net .14 .43 .14 .44
-------- -------- -------- --------
Total from investment operations .63 .80 .69 .86
-------- -------- -------- --------
Less dividends from investment income--net (.49) (.37) (.55) (.42)
-------- -------- -------- --------
Net asset value, end of period $ 10.60 $ 10.46 $ 10.61 $ 10.47
======== ======== ======== ========
Total Investment Based on net asset value per share 6.12% 8.13%+++ 6.67% 8.70%+++
Return:** ======== ======== ======== ========
Ratios to Expenses 1.45% 1.56%* .94% 1.04%*
Average Net ======== ======== ======== ========
Assets: Investment income--net 4.61% 4.68%* 5.12% 5.22%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 1,185 $ 432 $ 1,290 $ 750
Data: ======== ======== ======== ========
Portfolio turnover 56.05% 89.62% 56.05% 89.62%
======== ======== ======== ========
<PAGE>
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Massachusetts Municipal Bond Fund (the "Fund") is part
of Merrill Lynch Multi-State Municipal Series Trust (the "Trust").
The Fund is registered under the Investment Company Act of 1940 as a
non-diversified, open-end management investment company. The Fund
offers four classes of shares under the Merrill Lynch Select
Pricing SM System. Shares of Class A and Class D are sold with a
front-end sales charge. Shares of Class B and Class C may be subject
to a contingent deferred sales charge. All classes of shares have
identical voting, dividend, liquidation and other rights and the
same terms and conditions, except that Class B, Class C and Class D
Shares bear certain expenses related to the account maintenance of
such shares, and Class B and Class C Shares also bear certain
expenses related to the distribution of such shares. Each class has
exclusive voting rights with respect to matters relating to its
account maintenance and distribution expenditures. The following is
a summary of significant accounting policies followed by the Fund.
(a) Valuation of investments--Municipal bonds and other portfolio
securities in which the Fund invests are traded primarily in the
over-the-counter municipal bond and money markets and are valued at
the last available bid price in the over-the-counter market or on
the basis of yield equivalents as obtained from one or more dealers
that make markets in the securities. Financial futures contracts and
options thereon, which are traded on exchanges, are valued at their
settlement prices as of the close of such exchanges. Short-term
investments with remaining maturities of sixty days or less are
valued at amortized cost, which approximates market value.
Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or
under the direction of the Board of Trustees of the Trust, including
valuations furnished by a pricing service retained by the Trust,
which may utilize a matrix system for valuations. The procedures of
the pricing service and its valuations are reviewed by the officers
of the Trust under the general supervision of the Trustees.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
<PAGE>
* 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 and prepaid registration fees--
Deferred organization expenses are charged to expense on a straight-
line basis over a five-year period. Prepaid registration fees are
charged to expense as the related shares are issued.
(f) Dividends and distributions--Dividends from net investment
income are declared daily and paid monthly. Distributions of capital
gains are recorded on the ex-dividend dates. Distributions in excess
of realized capital gains are due primarily to differing tax
treatments for futures transactions and post-October losses.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
<PAGE>
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee based upon the average daily
value of the Fund's net assets at the following annual rates: 0.55%
of the Fund's average daily net assets not exceeding $500 million;
0.525% of average daily net assets in excess of $500 million but not
exceeding $1 billion; and 0.50% of average daily net assets in
excess of $1 billion.
Pursuant to the distribution plans (the "Distribution Plans")
adopted by the Fund in accordance with Rule 12b-1 under the
Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are
accrued daily and paid monthly at annual rates based upon the
average daily net assets of the shares as follows:
Account 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 year ended July 31, 1996, 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 $ 43 $ 537
Class D $207 $2,079
For the year ended July 31, 1996, MLPF&S received contingent
deferred sales charges of $166,231 and $2,058 relating to
transactions in Class B and Class C Shares, respectively.
<PAGE>
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, MLPF&S, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended July 31, 1996 were $38,399,392 and $49,038,233,
respectively.
Net realized and unrealized gains (losses) as of July 31, 1996 were
as follows:
Realized Unrealized
Losses Gain
Long-term investments $ (3,246) $ 2,468,329
Financial futures contracts (117,580) --
----------- -----------
Total $ (120,826) $ 2,468,329
=========== ===========
As of July 31, 1996, net unrealized appreciation for Federal income
tax purposes aggregated $2,468,329, of which $2,819,015 related to
appreciated securities and $350,686 related to depreciated
securities. The aggregate cost of investments at July 31, 1996 for
Federal income tax purposes was $64,605,670.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest
transactions was $7,525,610 and $9,552,246 for the years ended July
31, 1996 and July 31, 1995, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for
the Year Ended Dollar
July 31, 1996 Shares Amount
<PAGE>
Shares sold 11,145 $ 120,133
Shares issued to share-
holders in reinvestment
of dividends 14,167 151,254
----------- -----------
Total issued 25,312 271,387
Shares redeemed (103,808) (1,098,620)
----------- -----------
Net decrease (78,496) $ (827,233)
=========== ===========
Class A Shares for
the Year Ended Dollar
July 31, 1995 Shares Amount
Shares sold 117,446 $ 1,163,219
Shares issued to share-
holders in reinvestment
of dividends 15,843 174,421
----------- -----------
Total issued 133,289 1,337,640
Shares redeemed (298,026) (3,003,666)
----------- -----------
Net decrease (164,737) $(1,666,026)
=========== ===========
Class B Shares for
the Year Ended Dollar
July 31, 1996 Shares Amount
Shares sold 571,636 $ 6,100,084
Shares issued to share-
holders in reinvestment
of dividends 152,704 1,630,400
----------- -----------
Total issued 724,340 7,730,484
Shares redeemed (1,475,480) (15,689,139)
----------- -----------
Net decrease (751,140) $(7,958,655)
=========== ===========
NOTES TO FINANCIAL STATEMENTS (concluded)
Class B Shares for the Year Dollar
Ended July 31, 1995 Shares Amount
<PAGE>
Shares sold 958,141 $ 9,838,263
Shares issued to share-
holders in reinvestment
of dividends 184,447 1,882,663
----------- -----------
Total issued 1,142,588 11,720,926
Shares redeemed (2,039,329) (20,760,936)
----------- -----------
Net decrease (896,741) $(9,040,010)
=========== ===========
Class C Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 89,824 $ 961,975
Shares issued to share-
holders in reinvestment
of dividends 3,434 28,126
----------- -----------
Total issued 93,258 990,101
Shares redeemed (22,777) (247,358)
----------- -----------
Net increase 70,481 $ 742,743
=========== ===========
Class C Shares for the Period
October 21, 1994++ to Dollar
July 31, 1995 Shares Amount
Shares sold 67,137 $ 696,018
Shares issued to share-
holders in reinvestment
of dividends 528 5,534
----------- -----------
Total issued 67,665 701,552
Shares redeemed (26,353) (280,287)
----------- -----------
Net increase 41,312 $ 421,265
=========== ===========
[FN]
++Commencement of Operations.
Class D Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
<PAGE>
Shares sold 95,688 $ 1,010,719
Shares issued to share-
holders in reinvestment
of dividends 876 9,371
----------- -----------
Total issued 96,564 1,020,090
Shares redeemed (46,657) (502,555)
----------- -----------
Net increase 49,907 $ 517,535
=========== ===========
Class D Shares for the Period
October 21, 1994++ to Dollar
July 31, 1995 Shares Amount
Shares sold 78,584 $ 802,915
Shares issued to share-
holders in reinvestment
of dividends 312 3,255
----------- -----------
Total issued 78,896 806,170
Shares redeemed (7,189) (73,645)
----------- -----------
Net increase 71,707 $ 732,525
=========== ===========
[FN]
++Commencement of Operations.
5. Capital Loss Carryforward:
At July 31, 1996, the Fund had a net capital loss carryforward of
approximately $1,275,000, all of which expires in 2003. This amount
will be available to offset like amounts of any future taxable
gains.
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
Merrill Lynch Massachusetts 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
Massachusetts Municipal Bond Fund of Merrill Lynch Multi-State
Municipal Series Trust as of July 31, 1996, the related statements
of operations for the year then ended and changes in net assets for
each of the years in the two-year period then ended, and the
financial highlights for each of the years in the four-year period
then ended and for the period February 28, 1992 (commencement of
operations) to July 31, 1992. 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.
<PAGE>
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,
1996 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Merrill Lynch Massachusetts Municipal Bond Fund of Merrill Lynch
Multi-State Municipal Series Trust as of July 31, 1996, 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 9, 1996
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid monthly by
Merrill Lynch Massachusetts Municipal Bond Fund during its taxable
year ended July 31, 1996 qualify as tax-exempt interest dividends
for Federal income tax purposes.
Additionally, there were no capital gains distributed by the Fund
during the year.
Please retain this information for your records.
<PAGE>
