MERRILL LYNCH
MASSACHUSETTS
MUNICIPAL
BOND FUND
[FUND LOGO]
STRATEGIC
Performance
Semi-Annual Report
January 31, 1997
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
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 #16150 -- 1/97
Merrill Lynch Massachusetts Municipal Bond Fund January 31, 1997
TO OUR SHAREHOLDERS
The Municipal Market Environment
Long-term fixed-income bond yields generally declined over the six
months ended January 31, 1997. Initially, US Treasury bond yields
declined over 45 basis points (0.45%) to 6.45% by late November as
low employment growth and continued low inflation combined to
support lower bond yields. Concurrently, long-term municipal revenue
bond yields, as measured by the Bond Buyer Revenue Bond Index,
declined over 20 basis points to approximately 5.80%. However, signs
of increased economic activity and renewed inflation fears pushed
bond yields up for the remainder of the period. By the end of January
1997, US Treasury bond yields rose 35 basis points to end the period
at approximately 6.80%. Similarly, long-term municipal revenue bond
yields rose approximately 20 basis points from their lows in late
November to approximately 6.00%. During the six months ended January
31, 1997, US Treasury bond yields declined approximately 10 basis
points, while tax-exempt bond yields were essentially unchanged.
Recently, tax-exempt bond yields underperformed their taxable
counterparts despite a continued strong supply position. During the
six-month period ended January 31, 1997, over $88 billion in long-
term tax-exempt bonds was underwritten, essentially unchanged from
issuance a year ago. Approximately $50 billion in new municipal bonds
was issued during the three-month period ended January 31, 1997,
representing a decline of over 5% compared to the same period in
1996. This declining trend in bond issuance was even more apparent
recently. Slightly more than $10 billion in long-term bonds was
issued in January 1997, a decrease of over 15% compared to January
1996 issuance.
The municipal bond market's recent underperformance relative to
Treasury issues was the result of a number of other factors. The
historic strength of the US equity market has attracted significant
investor interest. Additionally, as tax-exempt bond yields declined
again below 6%, some investors temporarily lost interest in the
municipal bond market. If interest rates continue to decline as they
did at the end of 1994 and throughout 1995, investors, in general,
will quickly adjust to the new levels. The tax advantages generated
by municipal bonds quickly outweigh low nominal yields, and investor
demand increases.
The Presidential and Congressional elections this past November
resurrected some investor concerns regarding continued Federal
deficit reduction and potential legislative restrictions upon the
municipal bond market. This situation was similar to that at the
beginning of 1996 when tax-exempt bond yields were negatively
impacted by fears that legislation reducing the tax advantage of
municipal bonds would be introduced to aid further deficit
reductions.
However, the US Treasury bond market's recent relatively strong
performance resulted in municipal bonds becoming a particularly
attractive investment alternative. At current levels, long-term tax-
exempt revenue bonds yield over 88% of comparable US Treasury bond
yields. Current levels make tax-advantaged products more attractive
than they were at mid-year when yield ratios declined to approximately
85%. For example, to an investor in the 36% Federal income tax
bracket, a current tax-exempt bond yield of 6% represents a taxable
equivalent yield of approximately 9.37%.
Looking forward, the supply of new bond issuance for 1997 is expected
to be very similar to that of 1996, with most annual estimates
falling in the $170 billion - $175 billion range. Investor demand is
also expected to regain its former strength, with 1997 total
municipal redemptions (refundings, maturities and coupon payments) in
the $175 billion - $185 billion range. This overall balance suggests
that the positive technical backdrop the municipal bond market
enjoyed in 1996 could continue in 1997. However, it is likely that
seasonal factors may temporarily distort this overall balanced
technical scenario. During periods of reduced bond issuance, the ease
and ability to purchase tax-advantaged products at their current
attractive levels may be greatly restricted.
Portfolio Strategy
During the six-month period ended January 31, 1997, we primarily
maintained the defensive posture of the Fund which we adopted in mid-
1996. Our principal strategy was to favor higher-couponed issues
over more interest rate-sensitive securities that have greater
potential for capital appreciation. We believed that tax-exempt
interest rates would fluctuate in a broad range and larger-couponed
securities would offer both greater principal preservation and
generous tax-exempt income. In addition, we maintained minimal cash
reserves in recent months to further augment shareholder income.
New long-term bond issuance in Massachusetts was lower than that in
the national marketplace. During the six months ended January 31,
1997, over $2.5 billion in long-term securities was issued by
Massachusetts municipalities, a decline of about 10% compared to the
same period a year earlier. Likewise, in the three months ended
January 31, 1997, $1.5 billion in municipal bonds was issued in
Massachusetts, a decline of over 15% compared to the same period in
1996. This decline in new bond supply was perhaps the major
determining factor in our decision to maintain a fully invested
position. While 1997 annual issuance is expected to be similar to
that of 1996, more advantageous supply conditions are not expected
until late 1997. Consequently, we expect to remain fully invested
throughout much of 1997.
We believe that economic growth should slow by mid-1997, perhaps
aided by an increase in interest rates by the Federal Reserve Board.
Slower growth, combined with continued low inflation, may result in
materially lower interest rates. Additionally, the prospect for
further Federal deficit reduction may provide a positive backdrop for
more significant declines in long-term bond yields. Signs that such a
scenario is developing would trigger us to move to a more aggressive
strategy for the Fund, utilizing more interest rate-sensitive issues
in order to enhance the Fund's principal appreciation. At the same
time, however, we will still seek to generate an attractive level of
tax-exempt income.
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 ahead.
Sincerely,
/S/ARTHUR ZEIKEL
Arthur Zeikel
President
/S/VINCENT R. GIORDANO
Vincent R. Giordano
Senior Vice President
/S/FRED K. STUEBE
Fred K. Stuebe
Vice President and Portfolio Manager
March 4, 1997
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill
Lynch Select PricingSM System, which offers four pricing
alternatives:
(bullet) Class A Shares incur a maximum initial sales charge (front-
end load) of 4% and bear no ongoing distribution or account
maintenance fees. Class A Shares are available only to eligible
investors.
(bullet) Class B Shares are subject to a maximum contingent deferred
sales charge of 4% if redeemed during the first year, decreasing 1%
each year thereafter to 0% after the fourth year. In addition, Class
B Shares are subject to a distribution fee of 0.25% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after approximately 10 years. (There is no initial
sales charge for automatic share conversions.)
(bullet) Class C Shares are subject to a distribution fee of 0.35%
and an account maintenance fee of 0.25%. In addition, Class C Shares
are subject to a 1% contingent deferred sales charge if redeemed
within one year of purchase.
(bullet) Class D Shares incur a maximum initial sales charge of 4%
and an account maintenance fee of 0.10% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Dividends paid to each class
of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to each
class, which are deducted from the income available to be paid to
shareholders.
<TABLE>
<CAPTION>
Recent Performance Results
12 Month 3 Month
1/31/97 10/31/96 1/31/96 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $10.73 $10.74 $11.02 -2.63% -0.09%
Class B Shares* 10.73 10.74 11.02 -2.63 -0.09
Class C Shares* 10.72 10.73 11.01 -2.63 -0.09
Class D Shares* 10.73 10.74 11.02 -2.63 -0.09
Class A Shares -- Total Return* +2.62(1) +1.26(2)
Class B Shares -- Total Return* +2.10(3) +1.13(4)
Class C Shares -- Total Return* +1.99(5) +1.10(6)
Class D Shares -- Total Return* +2.52(7) +1.23(8)
Class A Shares -- Standardized 30-day Yield 4.67%
Class B Shares -- Standardized 30-day Yield 4.36%
Class C Shares -- Standardized 30-day Yield 4.26%
Class D Shares -- Standardized 30-day Yield 4.57%
* 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 $0.565 per share ordinary income dividends.
(2) Percent change includes reinvestment of $0.151 per share ordinary income dividends.
(3) Percent change includes reinvestment of $0.510 per share ordinary income dividends.
(4) Percent change includes reinvestment of $0.136 per share ordinary income dividends.
(5) Percent change includes reinvestment of $0.499 per share ordinary income dividends.
(6) Percent change includes reinvestment of $0.133 per share ordinary income dividends.
(7) Percent change includes reinvestment of $0.555 per share ordinary income dividends.
(8) Percent change includes reinvestment of $0.148 per share ordinary income dividends.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class A Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
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
1996 11.02 10.78 -- 0.557 + 3.05
1/1/97 -- 1/31/97 10.78 10.73 -- 0.041 + 0.01
Total $0.103 Total $2.918
Cumulative total return as of 1/31/97: +42.64%**
* 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 includesales charge; results would be lower if sales charge was included.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class B Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
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
1996 11.02 10.78 -- 0.502 + 2.53
1/1/97 -- 1/31/97 10.78 10.73 -- 0.037 - 0.04
Total $0.103 Total $2.652
Cumulative total return as of 1/31/97: +39.12%**
* 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 reflect deduction of any sales charge; results would be lower if sales charge was deducted.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class C Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94 -- 12/31/94 $10.03 $ 9.84 -- $0.088 - 1.00%
1995 9.84 11.01 -- 0.490 +17.20
1996 11.01 10.77 -- 0.491 + 2.42
1/1/97 -- 1/31/97 10.77 10.72 -- 0.036 - 0.05
Total $1.105
Cumulative total return as of 1/31/97: +18.78%**
* 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 reflect deduction of any sales charge; results would be lower if sales charge was deducted.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class D Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94 -- 12/31/94 $10.03 $ 9.84 -- $0.103 - 0.85%
1995 9.84 11.02 -- 0.545 +17.91
1996 11.02 10.78 -- 0.546 + 2.95
1/1/97 -- 1/31/97 10.78 10.73 -- 0.040 + 0.00
Total $1.234
Cumulative total return as of 1/31/97: +20.35%**
* 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.
</TABLE>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/96 +3.05% -1.07%
Inception (2/28/92)
through 12/31/96 +7.61 +6.71
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/96 +2.53% -1.39%
Inception (2/28/92)
through 12/31/96 +7.07 +7.07
* Maximum contingent deferred sales charge is 4% and is reduced
to 0% after 4 years.
** Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 12/31/96 +2.42% +1.44%
Inception (10/21/94)
through 12/31/96 +8.18 +8.18
* Maximum contingent deferred sales charge is 1% and is reduced
to 0% after 1 year.
** Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 12/31/96 +2.95% -1.17%
Inception (10/21/94)
through 12/31/96 +8.81 +6.80
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
<TABLE>
<CAPTION>
Merrill Lynch Massachusets Municipal Bond Fund January 31, 1997
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <C> <C> <C> <C>
Massachusetts -- 98.9%
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 $928
Massachusetts Bay Transportation Authority Revenue Bonds (Massachusetts General
Transportation Systems), Series A:
A+ A1 1,000 7% due 3/01/2021 1,191
A+ A1 1,750 Refunding, 7% due 3/01/2011 2,031
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) 3,279
A A1 2,520 (Brigham and Women's Hospital), Series C, 6.75% due 6/01/2021 2,657
A1+ VMIG1+ 100 (Capital Asset Program), VRDN, Series D, 3.55% due 1/01/2035 (a)(d) 100
AAA Aaa 5,150 (Medical Center of Central Massachusetts), CARS, Series B, 9.28% due 6/23/2022 (b)(f) 5,948
AAA Aaa 2,500 (Newton Wellesley Hospital), Series D, 7% due 7/01/2001 (d)(g) 2,794
AAA Aaa 1,000 (Northeastern University), Series E, 6.55% due 10/01/2022 (d) 1,084
AAA Aaa 2,000 Refunding (Lowell General Hospital), Series B, 5.25% due 6/01/2016 (h) 1,898
NR* B 1,000 Refunding (New England Memorial Hospital), Series B, 6.125% due 7/01/2013 811
AAA Aaa 1,000 Refunding (Stonehill College), Series E, 6.60% due 7/01/2020 (d) 1,090
NR* A 2,335 Refunding (Wheaton College), Series C, 5.25% due 7/01/2019 2,200
Massachusetts State, HFA, Revenue Bonds (Residential Development)(c):
AAA Aaa 2,000 Series C, 6.875% due 11/15/2011 2,121
AAA Aaa 5,000 Series C, 6.90% due 11/15/2021 5,283
AAA Aaa 1,000 Series D, Section 8, 6.875% due 11/15/2021 1,047
Massachusetts State, HFA, S/F Housing Revenue Bonds, AMT:
A+ Aa 1,500 Series 38, 7.20% due 12/01/2026 1,600
A+ Aa 2,000 Series 40, 6.65% due 12/01/2027 2,071
AAA Aaa 1,950 Series 48, 6.35% due 6/01/2026 (d) 1,981
Massachusetts State Industrial Finance Agency Revenue Bonds:
AAA Aaa 1,000 (Babson College), Series A, 6.50% due 10/01/2022 (d) 1,079
NR* A3 2,000 (Babson College), Series A, 5.25% due 10/01/2027 1,846
AAA Aaa 2,750 (Brandeis University), Series C, 6.80% due 10/01/2019 (d) 2,945
A+ A1 1,795 Refunding (Holy Cross College-II), 6.375% due 11/01/2002 (g) 1,987
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
A1+ VMIG1+ 1,400 Massachusetts State, UPDATES, Series B, 3.60% due 12/01/1997 (a) 1,400
AA+ Aa3 1,680 Massachusetts State Water Pollution Abatement Trust Revenue Bonds (Secured Loan
Program), Series A, 6.375% due 2/01/2015 1,791
A A 6,000 Massachusetts State Water Resource Authority, Series A, 6.50% due 7/15/2019 6,669
AAA Aaa 1,000 South Essex, Massachusetts, Sewer District, GO, Refunding, Series A, 5.25% due
6/15/2024 (d) 941
AAA Aaa 1,210 Southern Berkshire, Massachusetts, Regional School District, GO, 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 9/01/2002 (g) 1,704
Total Investments (Cost -- $59,611) -- 98.9% 63,022
Other Assets Less Liabilities -- 1.1% 673
---------
Net Assets -- 100.0% $63,695
=========
(a) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at January 31, 1997.
(b) AMBAC Insured.
(c) FNMA Collateralized.
(d) MBIA Insured.
(e) FGIC Insured.
(f) The interest rate is subject to change periodically and inversely based
upon prevailing market rates. The interest rate shown is the rate in effect
at January 31, 1997.
(g) Prerefunded.
(h) FSA Insured.
* Not Rated.
+ Highest short-term rating by Moody's Investors Service, Inc.
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 right.
AMT Alternative Minimum Tax (subject to)
CARS Complementary Auction Rate Securities
GO General Obligation Bonds
HFA Housing Finance Agency
S/F Single - Family
UPDATES Unit Priced Demand Adjustable
Tax-Exempt Securities
UT Unlimited Tax
VRDN Variable Rate Demand Notes
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of January 31, 1997
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $59,610,797)(Note 1a) $63,022,295
Cash 177,240
Receivables:
Interest $707,776
Beneficial interest sold 15,097 722,873
--------------
Deferred organization expenses (Note 1e) 5,938
Prepaid registration fees and other assets (Note 1e) 7,410
-------------
Total assets 63,935,756
-------------
Liabilities: Payables:
Beneficial interest redeemed 63,599
Dividends to shareholders (Note 1f) 51,309
Investment adviser (Note 2) 31,089
Distributor (Note 2) 25,513 171,510
--------------
Accrued expenses and other liabilities 69,253
-------------
Total liabilities 240,763
-------------
Net Assets: Net assets $63,694,993
=============
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited number of
Consist of: shares authorized $49,452
Class B Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 518,255
Class C Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 13,946
Class D Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 11,895
Paid-in capital in excess of par 61,520,114
Accumulated realized capital losses on investments -- net (Note 5) (1,757,390)
Accumulated distribution in excess of realized capital gains -- net (Note 1f) (72,777)
Unrealized appreciation on investments -- net 3,411,498
-------------
Net assets $63,694,993
=============
Net Asset Value: Class A -- Based on net assets of $5,307,006 and 494,519 shares of
beneficial interest outstanding $10.73
=============
Class B -- Based on net assets of $55,615,667 and 5,182,547 shares of
beneficial interest outstanding $10.73
=============
Class C -- Based on net assets of $1,495,482 and 139,460 shares of
beneficial interest outstanding $10.72
=============
Class D -- Based on net assets of $1,276,838 and 118,953 shares of
beneficial interest outstanding $10.73
=============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Six Months Ended
January 31, 1997
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned $2,059,878
(Note 1d):
Expenses: Investment advisory fees (Note 2) $187,356
Account maintenance and distribution fees -- Class B (Note 2) 149,130
Professional fees 33,771
Accounting services (Note 2) 24,545
Transfer agent fees -- Class B (Note 2) 17,671
Registration fees (Note 1e) 10,590
Printing and shareholder reports 6,543
Account maintenance and distribution fees -- Class C (Note 2) 4,058
Amortization of organization expenses (Note 1e) 3,259
Custodian fees 2,688
Pricing fees 2,187
Trustees' fees and expenses 1,881
Transfer agent fees -- Class A (Note 2) 1,439
Account maintenance fees -- Class D (Note 2) 648
Transfer agent fees -- Class C (Note 2) 400
Transfer agent fees -- Class D (Note 2) 320
Other 105
---------------
Total expenses 446,591
-------------
Investment income -- net 1,613,287
-------------
Realized & Realized loss on investments -- net (135,728)
Unrealized Change in unrealized appreciation on investments -- net 943,169
Gain (Loss) on -------------
Investments -- Net Net Increase in Net Assets Resulting from Operations $2,420,728
(Notes 1b, 1d & 3): =============
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
Increase (Decrease) in Net Assets: Jan. 31, 1997 July 31, 1996
<S> <C> <C>
Operations: Investment income -- net $1,613,287 $3,534,570
Realized loss on investments -- net (135,728) (120,826)
Change in unrealized appreciation on investments -- net 943,169 1,137,298
------------ -------------
Net increase in net assets resulting from operations 2,420,728 4,551,042
------------ -------------
Dividends to Investment income -- net:
Shareholders Class A (151,458) (338,974)
(Note 1f): Class B (1,397,733) (3,107,959)
Class C (31,061) (36,158)
Class D (33,035) (51,479)
------------ -------------
Net decrease in net assets resulting from dividends to shareholders (1,613,287) (3,534,570)
------------ -------------
Beneficial Interest Net decrease in net assets derived from beneficial
Transactions interest transactions (5,342,927) (7,525,610)
(Note 4): ------------ -------------
Net Assets: Total decrease in net assets (4,535,486) (6,509,138)
Beginning of period 68,230,479 74,739,617
------------ -------------
End of period $63,694,993 $68,230,479
============ =============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Class A
For the Six
The following per share data and ratios have been derived Months
from information provided in the financial statements. Ended
Jan. 31, For the Year Ended July 31,
1997 1996 1995 1994 1993
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.60 10.46 $10.48 $11.07 $10.68
Operating ------- ------- ------- ------- -------
Performance: Investment income -- net .28 .56 .56 .58 .63
Realized and unrealized gain (loss) on
investments -- net .13 .14 (.02) (.43) .42
------- ------- ------- ------- -------
Total from investment operations .41 .70 .54 .15 1.05
------- ------- ------- ------- -------
Less dividends and distributions:
Investment income -- net (.28) (.56) (.56) (.58) (.63)
Realized gain on investments -- net -- -- -- (.15) (.03)
In excess of realized gain on
investments -- net -- -- -- (.01) --
------- ------- ------- ------- -------
Total dividends and distributions (.28) (.56) (.56) (.74) (.66)
------- ------- ------- ------- -------
Net asset value, end of period $10.73 $10.60 $10.46 $10.48 $11.07
======= ======= ======= ======= =======
Total Investment Based on net asset value per share 3.94%++ 6.78% 5.35% 1.26% 10.08%
Return:** ======= ======= ======= ======= =======
Ratios to Average Expenses, net of reimbursement .85%* .84% .88% .62% .42%
Net Assets: ======= ======= ======= ======= =======
Expenses .85%* .84% .91% .85% .95%
======= ======= ======= ======= =======
Investment income -- net 5.20%* 5.23% 5.42% 5.33% 5.75%
======= ======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $5,307 $5,887 $6,630 $8,367 $7,093
Data: ======= ======= ======= ======= =======
Portfolio turnover 19.18% 56.05% 89.62% 72.13% 39.37%
======= ======= ======= ======= =======
* Annualized
** Total investment returns exclude the effect of sales loads.
++ Aggregate total investment return
See Notes to Financial Statements
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights (continued)
Class B
For the Six
The following per share data and ratios have been derived Months
from information provided in the financial statements. Ended
Jan. 31, For the Year Ended July 31,
1997 1996 1995 1994 1993
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.60 $10.46 $10.48 $11.07 $10.68
Operating ------- ------- ------- ------- -------
Performance: Investment income -- net .26 .51 .50 .53 .57
Realized and unrealized gain (loss) on
investments -- net .13 .14 (.02) (.43) .42
------- ------- ------- ------- -------
Total from investment operations .39 .65 .48 .10 .99
------- ------- ------- ------- -------
Less dividends and distributions:
Investment income -- net (.26) (.51) (.50) (.53) (.57)
Realized gain on investments -- net -- -- -- (.15) (.03)
In excess of realized gain on
investments -- net -- -- -- (.01) --
------- ------- ------- ------- -------
Total dividends and distributions (.26) (.51) (.50) (.69) (.60)
------- ------- ------- ------- -------
Net asset value, end of period $10.73 $10.60 $10.46 $10.48 $11.07
======= ======= ======= ======= =======
Total Investment Based on net asset value per share 3.67%++ 6.23% 4.82% .75% 9.53%
Return:** ======= ======= ======= ======= =======
Ratios to Average Expenses, net of reimbursement 1.36%* 1.35% 1.39% 1.12% .93%
Net Assets: ======= ======= ======= ======= =======
Expenses 1.36%* 1.35% 1.42% 1.36% 1.45%
======= ======= ======= ======= =======
Investment income -- net 4.69%* 4.72% 4.91% 4.83% 5.24%
======= ======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $55,616 $59,868 $66,927 $76,436 $71,429
Data: ======= ======= ======= ======= =======
Portfolio turnover 19.18% 56.05% 89.62% 72.13% 39.37%
======= ======= ======= ======= =======
* Annualized
** Total investment returns exclude the effect of sales loads.
++ Aggregate total investment return
See Notes to Financial Statements
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights (concluded)
Class C
For the For the
Six For the Period
The following per share data and ratios have been derived Months Year Oct. 21,
from information provided in the financial statements. Ended Ended 1994+ to
Jan. 31, July 31, July 31,
1997 1996 1995
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.60 $10.46 $10.03
Operating ------- ------- -------
Performance: Investment income -- net .25 .49 .37
Realized and unrealized gain on investments -- net .12 .14 .43
------- ------- -------
Total from investment operations .37 .63 .80
------- ------- -------
Less dividends from investment income -- net (.25) (.49) (.37)
------- ------- -------
Net asset value, end of period $10.72 $10.60 $10.46
======= ======= =======
Total Investment Based on net asset value per share 3.52%++ 6.12% 8.13%++
Return:** ======= ======= =======
Ratios to Average Expenses 1.46%* 1.45% 1.56%*
Net Assets: ======= ======= =======
Investment income -- net 4.59%* 4.61% 4.68%*
======= ======= =======
Supplemental Net assets, end of period (in thousands) $1,495 $1,185 $432
Data: ======= ======= =======
Portfolio turnover 19.18% 56.05% 89.62%
======= ======= =======
<CAPTION>
Class D
For the For the
Six For the Period
The following per share data and ratios have been derived Months Year Oct. 21,
from information provided in the financial statements. Ended Ended 1994+ to
Jan. 31, July 31, July 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995
<S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.61 $10.47 $10.03
Operating ------- ------- -------
Performance: Investment income -- net .28 .55 .42
Realized and unrealized gain on investments -- net .12 .14 .44
------- ------- -------
Total from investment operations .40 .69 .86
------- ------- -------
Less dividends from investment income -- net (.28) (.55) (.42)
------- ------- -------
Net asset value, end of period $10.73 $10.61 $10.47
======= ======= =======
Total Investment Based on net asset value per share 3.79%++ 6.67% 8.70%++
Return:** ======= ======= =======
Ratios to Average Expenses .95%* .94% 1.04%*
Net Assets: ======= ======= =======
Investment income -- net 5.10%* 5.12% 5.22%*
======= ======= =======
Supplemental Net assets, end of period (in thousands) $1,277 $1,290 $750
Data: ======= ======= =======
Portfolio turnover 19.18% 56.05% 89.62%
======= ======= =======
* Annualized
** Total investment returns exclude the effect of sales loads.
++ Aggregate total investment return
See Notes to Financial Statements
</TABLE>
Merrill Lynch Massachusetts Municipal Bond Fund January 31, 1997
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. These unaudited
financial statements reflect all adjustments which are, in the opinion
of management, necessary to a fair statement of the results for the
interim period presented. All such adjustments are of a normal recurring
nature. The Fund offers four classes of shares under the Merrill Lynch
Select PricingSM System. Shares of Class A and Class D are sold with a
front-end sales charge. Shares of Class B and Class C may be subject to
a contingent deferred sales charge. All classes of shares have identical
voting, dividend, liquidation and other rights and the same terms and
conditions, except that Class B, Class C and Class D Shares bear certain
expenses related to the account maintenance of such shares, and Class B
and Class C Shares also bear certain expenses related to the
distribution of such shares. Each class has exclusive voting rights with
respect to matters relating to its account maintenance and distribution
expenditures. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments -- Municipal bonds and other portfolio
securities in which the Fund invests are traded primarily in the over-
the-counter municipal bond and money markets and are valued at the last
available bid price in the over-the-counter market or on the basis of
yield equivalents as obtained from one or more dealers that make markets
in the securities. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their settlement prices as
of the close of such exchanges. Short-term investments with remaining
maturities of sixty days or less are valued at amortized cost, which
approximates market value. Securities and assets for which market
quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of
Trustees of the Trust, including valuations furnished by a pricing
service retained by the Trust, which may utilize a matrix system for
valuations. The procedures of the pricing service and its valuations are
reviewed by the officers of the Trust under the general supervision of
the Trustees.
(b) Derivative financial instruments -- The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the counterparty
does not perform under the contract.
(bullet) Financial futures contracts -- The Fund may purchase or sell
interest rate futures contracts and options on such futures contracts
for the purpose of hedging the market risk on existing securities or the
intended purchase of securities. Futures contracts are contracts for
delayed delivery of securities at a specific future date and at a
specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required by
the exchange on which the transaction is effected. Pursuant to the
contract, the Fund agrees to receive from or pay to the broker an amount
of cash equal to the daily fluctuation in value of the contract. Such
receipts or payments are known as variation margin and are recorded by
the Fund as unrealized gains or losses. When the contract is closed, the
Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the
time it was closed.
(c) Income taxes -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its taxable
income to its shareholders. Therefore, no Federal income tax provision
is required.
(d) Security transactions and investment income -- Security transactions
are recorded on the dates the transactions are entered into (the trade
dates). Interest income is recognized on the accrual basis. Discounts
and market premiums are amortized into interest income. Realized gains
and losses on security transactions are determined on the identified
cost basis.
(e) Deferred organization expenses 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.
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 six months ended January 31, 1997, MLFD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the Fund's
Class A and Class D Shares as follows:
MLFD MLPF&S
Class A $40 $490
Class D $28 $350
For the six months ended January 31, 1997, MLPF&S received contingent
deferred sales charges of $52,250 relating to transactions in Class B
Shares.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-owned
subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of FAM, PSI, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for
the six months ended January 31, 1997 were $12,031,249 and $13,353,838,
respectively.
Net realized and unrealized gains (losses) as of January 31, 1997 were
as follows:
Realized Unrealized
Losses Gains
Long-term investments $(135,728) $3,411,498
---------- -----------
Total $(135,728) $3,411,498
========== ===========
As of January 31, 1997, net unrealized appreciation for Federal income
tax purposes aggregated $3,411,498, of which $3,619,919 related to
appreciated securities and $208,421 related to depreciated securities.
The aggregate cost of investments at January 31, 1997 for Federal income
tax purposes was $59,610,797.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest transactions
was $5,342,927 and $7,525,610 for the six months ended January 31, 1997
and for the year ended July 31, 1996, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Six Dollar
Months Ended January 31, 1997 Shares Amount
Shares sold 12,611 $135,515
Shares issued to shareholders
in reinvestment of dividends 5,567 59,522
--------- ---------
Total issued 18,178 195,037
Shares redeemed (78,842) (841,504)
--------- ---------
Net decrease (60,664) $(646,467)
========= =========
Class A Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 11,145 $120,133
Shares issued to shareholders
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 B Shares for the Six Dollar
Months Ended January 31, 1997 Shares Amount
Shares sold 211,804 $2,263,836
Shares issued to shareholders
in reinvestment of dividends 69,183 739,763
--------- ---------
Total issued 280,987 3,003,599
Automatic conversion
of shares (4,523) (48,364)
Shares redeemed (739,428) (7,919,456)
--------- ---------
Net decrease (462,964) $(4,964,221)
========= =========
Class B Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 571,636 $6,100,084
Shares issued to shareholders
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)
========= =========
Class C Shares for the
Six Months Ended Dollar
January 31, 1997 Shares Amount
Shares sold 42,420 $454,173
Shares issued to shareholders
in reinvestment of dividends 2,437 26,059
--------- ---------
Total issued 44,857 480,232
Shares redeemed (17,190) (184,266)
--------- ---------
Net increase 27,667 $295,966
========= =========
Class C Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 89,824 $961,975
Shares issued to shareholders
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 D Shares for the
Six Months Ended Dollar
January 31, 1997 Shares Amount
Shares sold 4,817 $51,495
Automatic conversion
of shares 4,523 48,364
Shares issued to shareholders
in reinvestment of dividends 406 4,345
--------- ---------
Total issued 9,746 104,204
Shares redeemed (12,407) (132,409)
--------- ---------
Net decrease (2,661) $(28,205)
========= =========
Class D Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 95,688 $1,010,719
Shares issued to shareholders
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
========= =========
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.
