MERRILL LYNCH
MASSACHUSETTS
MUNICIPAL
BOND FUND
[FUND LOGO]
STRATEGIC
Performance
Annual Report
July 31, 1997
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless accompanied or
preceded by the Fund's current prospectus. Past performance results
shown in this report should not be considered a representation of future
performance. Investment return and principal value of shares will
fluctuate so that shares, when redeemed, may be worth more or less than
their original cost. Statements and other information herein are as
dated and are subject to change.
Merrill Lynch Massachusetts
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, NJ
08543-9011 #16150 -- 7/97
[RECYCLE LOGO]
Printed on post-consumer recycled paper
Merrill Lynch Massachusetts Municipal Bond Fund July 31, 1997
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the six months ended July 31, 1997, a number of very favorable
factors combined to push both tax-exempt and taxable bond yields to
recent historic lows. A slowing domestic economy, a continued benign, if
not improving, inflationary environment, a declining Federal budget
deficit with resultant reduced Treasury borrowing needs, and a
successful Congressional budget accord all resulted in significant
declines in fixed-income yields. By the end of July, 30-year US Treasury
bond yields had declined approximately 50 basis points (0.50%) to 6.30%,
their lowest level in over a year. Similarly, as measured by the Bond
Buyer Revenue Bond Index, long-term municipal revenue bond yields fell
over 50 basis points to end the July 31, 1997 quarter at 5.49%, their
lowest level since early 1994.
The decline in tax-exempt yields in recent months was even more
impressive given that the municipal market lost much of the technical
support it enjoyed for over a year. In previous quarters, new tax-exempt
bond issuance declined, or remained stable. During the six months ended
July 31, 1997, approximately $100 billion in new long-term municipal
securities was underwritten, an increase of over 7.5% versus the
comparable period in 1996. As tax-exempt bond yields declined, many
municipal bond issuers took this opportunity to both issue new debt as
well as refinance older, higher-couponed debt with new, lower-yielding
issues. This refinancing led to a surge in tax-exempt issuance in recent
months. Over the three months ended July 31, 1997, new long-term tax-
exempt bond issuance totaled approximately $55 billion, an increase of
over 15% versus the July 31, 1996 quarter.
The decline in municipal bond yields also resulted in some reduction in
retail investor demand. In earlier episodes of rapidly declining
interest rates, individual investor demand initially fell until invest-
ors became more acclimated to the current levels. Should interest rates
stabilize, we expect investor demand to return to earlier levels. Also,
this past June and July, municipal bond investors received over $50
billion in assets from coupon income payments, bond maturities, and the
proceeds from early bond redemptions. Despite the continued allure of
the US equity market, it is likely that much of these assets will be
reallocated to the municipal bond market as investors adjust to the new
investment environment.
Looking forward, given the extent of the recent bond market rally, some
retrenchment or at least a period of consolidation is likely. However,
the positive backdrop of modest economic growth and low inflation
suggests that any such adjustment is not likely to be excessive. Despite
recent increases in new bond issuance, supply for all of 1997 is not
expected to be materially different than earlier estimates of
approximately $175 billion. It is likely that the recent increase in
issuance has largely borrowed from that originally scheduled for later
this year. Additionally, any significant increase in tax-exempt bond
yields will prevent any further bond refinancings, reducing future
supply. Unless the current positive economic fundamentals undergo
immediate and significant deterioration, any increase in municipal bond
yields is likely to be viewed as an opportunity to purchase more
attractively priced tax-exempt securities.
Fiscal Year in Review
During the past 12 months, the municipal bond market was characterized
by tremendous price volatility within a narrow trading range. We focused
on purchasing long-term bonds as yields approached 6.00% and selling
these securities as yields rallied to 5.50%. The Fund was fully invested
in long-term securities during most of the fiscal year to seek to
achieve a yield greater than that of similar Massachusetts municipal
bond funds. The Fund's cash equivalent reserves fluctuated between 5% --
10% of total assets, and a large portion of assets committed to longer-
term maturities currently have coupons structured for income rather than
price appreciation. During the 12 months ended July 31, 1997, the Fund's
slightly defensive strategy, coupled with an essentially fully invested
position, generated a total return performance above the industry
average as well as an above-average yield.
Portfolio Matters
During the six months ended July 31, 1997, we maintained the slightly
defensive posture adopted in late 1996. Our principal concern was that
the strong economic growth seen in the fourth quarter of 1996 would
continue into 1997, causing the Federal Reserve Board to raise interest
rates so that growth would not result in a significant increase in
inflation. However, US economic growth slowed in the second quarter of
1997 and inflation remained subdued, allowing interest rates to decline.
We believed the Fund's structure would allow it to perform well during
periods of market improvement.
We generally maintained the Fund's cash reserves below 5% of net assets
in order to seek to enhance the Fund's dividend stream and in response
to the continued scarcity of attractively priced tax-exempt
Massachusetts issues. During the six months ended July 31, 1997,
approximately $3 billion in Massachusetts municipal securities was
underwritten, an increase of over 25% as compared to the same
period a year ago. However, the majority of recent Massachusetts
issuance was dominated by current-couponed issues, with poor call
protection features, which would not have enhanced the Fund's overall
structure.
Looking forward, we expect to maintain our current strategy of waiting
for an environment characterized by higher interest rates before
adopting a more aggressive portfolio structure. In such an environment,
we expect to emphasize higher-couponed issues over more interest rate-
sensitive securities. The generation of an optimal amount of tax-exempt
income will remain the primary investment strategy of the Fund. As new
bond issuance is expected to be approximately $175 billion on an annual
basis for all of 1997, we expect to maintain the Fund's fully invested
position.
In Conclusion
We appreciate your ongoing interest in Merrill Lynch Massachusetts
Municipal Bond Fund, and we look forward to serving your investment
needs in the months and years to come.
Sincerely,
/S/ARTHUR ZEIKEL
Arthur Zeikel
President
/S/VINCENT R. GIORDANO
Vincent R. Giordano
Senior Vice President
/S/FRED K. STUEBE
Fred K. Stuebe
Vice President and Portfolio Manager
September 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. Figures shown in the "Average Annual Total Return"
tables as well as the total returns and cumulative total returns in the
"Performance Summary" tables assume reinvestment of all dividends and
capital gains distributions at net asset value on the payable date.
Investment return and principal value of shares will fluctuate so that
shares, when redeemed, may be worth more or less than their original
cost. Dividends paid to each class of shares will vary because of the
different levels of account maintenance, distribution and transfer
agency fees applicable to each class, which are deducted from the income
available to be paid to shareholders.
<TABLE>
<CAPTION>
Recent Performance Results
12 Month 3 Month
7/31/97 4/30/97 7/31/96 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $11.07 $10.62 $10.60 + 4.43% +4.24%
Class B Shares* 11.07 10.62 10.60 + 4.43 +4.24
Class C Shares* 11.06 10.61 10.60 + 4.34 +4.24
Class D Shares* 11.07 10.62 10.61 + 4.34 +4.24
Class A Shares -- Total Return* +10.02(1) +5.60(2)
Class B Shares -- Total Return* + 9.46(3) +5.47(4)
Class C Shares -- Total Return* + 9.25(5) +5.45(6)
Class D Shares -- Total Return* + 9.80(7) +5.58(8)
Class A Shares -- Standardized 30-day Yield 4.51%
Class B Shares -- Standardized 30-day Yield 4.20%
Class C Shares -- Standardized 30-day Yield 4.11%
Class D Shares -- Standardized 30-day Yield 4.42%
* 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 $0.559 per share ordinary income dividends.
(2) Percent change includes reinvestment of $0.141 per share ordinary income dividends.
(3) Percent change includes reinvestment of $0.504 per share ordinary income dividends.
(4) Percent change includes reinvestment of $0.127 per share ordinary income dividends.
(5) Percent change includes reinvestment of $0.493 per share ordinary income dividends.
(6) Percent change includes reinvestment of $0.124 per share ordinary income dividends.
(7) Percent change includes reinvestment of $0.548 per share ordinary income dividends.
(8) Percent change includes reinvestment of $0.138 per share ordinary income dividends.
</TABLE>
[GRAPHIC LINE CHART OMITTED: TOTAL RETURN BASED ON A $10,000 INVESTMENT]
Merrill Lynch Massachusetts Municipal Bond Fund
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** 7/97
ML Massachusetts Municipal Bond Fund+-
Class A Shares* $9,600 $14,494
ML Massachusetts Municipal Bond Fund+-
Class B Shares* $10,000 $14,689
Lehman Brothers Municipal Bond Index++ $10,000 $15,032
Total Return Based on a $10,000 Investment--Class C Shares and Class D
Shares
A line graph depicting the growth of an investment in the Fund's Class
C Shares and Class D Shares compared to growth of an investment in the
Lehman Brothers Municipal Bond Index. Beginning and ending values are:
10/21/94** 7/97
ML Massachusetts Municipal Bond Fund+-
Class C Shares* $10,000 $12,536
ML Massachusetts Municipal Bond Fund+-
Class D Shares* $9,600 $12,222
Lehman Brothers Municipal Bond Index++ $10,000 $13,054
* 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 6/30/97 +8.26% +3.93%
Five Years Ended 6/30/97 +6.94 +6.07
Inception (2/28/92)
through 6/30/97 +7.46 +6.64
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/97 +7.72% +3.72%
Five Years Ended 6/30/97 +6.40 +6.40
Inception (2/28/92)
through 6/30/97 +6.92 +6.92
* 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 6/30/97 +7.61% +6.61%
Inception (10/21/94)
through 6/30/97 +7.66 +7.66
* Maximum contingent deferred sales charge is 1% and is reduced
to 0% after 1 year.
** Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 6/30/97 +8.16% +3.83%
Inception (10/21/94)
through 6/30/97 +8.26 +6.63
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
<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 -- 7/31/97 10.78 11.07 -- 0.312 + 5.86
Total $0.103 Total $3.189
Cumulative total return as of 7/31/97: +50.98%**
* Figures may include short-term capital gains distributions.
** Figures do not include sales charge; results would be lower if sales charge was included.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class B Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
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 -- 7/31/97 10.78 11.07 -- 0.282 + 5.55
Total $0.103 Total $2.897
Cumulative total return as of 7/31/97: +46.89%**
* Figures may include short-term capital gains distributions.
** Figures do not reflect deduction of any sales charge; results would be lower if sales charge was deducted.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class C Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94 -- 12/31/94 $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 -- 7/31/97 10.77 11.06 -- 0.276 + 5.49
Total $1.345
Cumulative total return as of 7/31/97: +25.36%**
* Figures may include short-term capital gains distributions.
** Figures do not reflect deduction of any sales charge; results would be lower if sales charge was deducted.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class D Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94 -- 12/31/94 $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 -- 7/31/97 10.78 11.07 -- 0.306 + 5.79
Total $1.500
Cumulative total return as of 7/31/97: +27.33%**
* Figures may include short-term capital gains distributions.
** Figures do not include sales charge; results would be lower if sales charge was included.
</TABLE>
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
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<TABLE>
<CAPTION>
Merrill Lynch Massachusetts Municipal Bond Fund July 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 -- 99.1%
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 $945
Massachusetts Bay Transportation Authority Revenue Bonds (Massachusetts
General Transportation Systems), Series A:
A+ A1 1,000 7% due 3/01/2021 1,245
A+ A1 1,750 Refunding, 7% due 3/01/2011 2,113
AAA Aaa 980 Massachusetts Education Loan Authority, Educational Loan Revenue Bonds, AMT,
Issue E, Series A, 7.375% due 1/01/2012 (b) 1,071
AAA Aaa 1,880 Massachusetts Educational Financing Authority, Educational Loan Revenue
Refunding Bonds, AMT, Issue E, 5.85% due 7/01/2014 (b) 1,957
Massachusetts State Health and Educational Facilities Authority Revenue Bonds:
AAA Aaa 2,780 (Boston College), Series J, 6.625% due 7/01/2021 (e) 3,053
A+ A1 2,520 (Brigham and Women's Hospital), Series C, 6.75% due 6/01/2021 2,669
A1+ VMIG1+ 1,500 (Capital Asset Program), VRDN, Series B, 3.45% due 7/01/2005 (a)(d) 1,500
AAA Aaa 5,150 (Central Massachusetts Medical Center), CARS, Series B, 8.87% due 6/23/2022
(b)(f) 6,412
AAA Aaa 2,500 (Newton Wellesley Hospital), Series D, 7% due 7/01/2001 (d)(g) 2,800
AAA Aaa 1,000 (Northeastern University), Series E, 6.55% due 10/01/2022 (d) 1,110
NR* B2 1,000 Refunding (New England Memorial Hospital), Series B, 6.125% due 7/01/2013 869
AAA Aaa 1,000 Refunding (Stonehill College), Series E, 6.60% due 7/01/2020 (d) 1,108
NR* A 2,335 Refunding (Wheaton College), Series C, 5.25% due 7/01/2019 2,323
Massachusetts State, HFA, Revenue Bonds (Residential Development) (c):
AAA Aaa 2,000 Series C, 6.875% due 11/15/2011 2,158
AAA Aaa 2,500 Series C, 6.90% due 11/15/2021 2,700
AAA Aaa 1,000 Series D, Section 8, 6.875% due 11/15/2021 1,075
Massachusetts State, HFA, S/F Housing Revenue Bonds, AMT:
A+ Aa 1,500 Series 38, 7.20% due 12/01/2026 1,622
A+ Aa 2,000 Series 40, 6.65% due 12/01/2027 2,123
AAA Aaa 1,915 Series 48, 6.35% due 6/01/2026 (d) 2,011
Massachusetts State Industrial Finance Agency Revenue Bonds:
AAA Aaa 1,000 (Babson College), Series A, 6.50% due 10/01/2022 (d) 1,104
NR* A3 2,000 (Babson College), Series A, 5.25% due 10/01/2027 1,970
A+ A1 1,795 Refunding (Holy Cross College-II), 6.375% due 11/01/2002 (g) 2,001
A1+ VMIG1+ 1,700 Massachusetts State Municipal Wholesale Electric Company, Power Supply System,
Revenue Refunding Bonds, VRDN, Series C, 3.50% due 7/01/2019 (a) 1,700
AA+ Aa3 1,680 Massachusetts State Water Pollution Abatement Trust Revenue Bonds (Secured
Loan Program), Series A, 6.375% due 2/01/2015 1,836
A A 6,000 Massachusetts State Water Resource Authority, Series A, 6.50% due 7/15/2019 7,023
NR* Aaa 1,000 Nantucket, Massachusetts, GO, 5.50% due 7/15/2006 (d) 1,070
AAA Aaa 1,000 South Essex, Massachusetts, Sewer District, GO, Refunding, Series A, 5.25% due
6/15/2024 (d) 990
AAA Aaa 1,210 Southern Berkshire, Massachusetts, Regional School District, GO, UT, 7% due
4/15/2003 (d)(g) 1,374
NR* Baa 1,500 Springfield, Massachusetts, School Project Loan, GO, Series B, 7.10% due
9/01/2002 (g) 1,718
Total Investments (Cost -- $56,583) -- 99.1% 61,650
Other Assets Less Liabilities -- 0.9% 540
-------
Net Assets -- 100.0% $62,190
=======
(a) The interest rate is subject to change periodically based upon prevailing market rates.
The interest rate shown is the rate in effect at July 31, 1997.
(b) 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 July 31, 1997.
(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>
<TABLE>
<CAPTION>
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of July 31, 1997
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $56,582,944) (Note 1a) $61,650,273
Cash 160,103
Receivables:
Interest $605,865
Beneficial interest sold 64,932 670,797
---------
Prepaid registration fees and other assets (Note 1e) 7,161
-----------
Total assets 62,488,334
-----------
Liabilities: Payables:
Beneficial interest redeemed 128,997
Dividends to shareholders (Note 1f) 77,378
Investment adviser (Note 2) 28,804
Distributor (Note 2) 23,423 258,602
---------
Accrued expenses and other liabilities 40,157
-----------
Total liabilities 298,759
-----------
Net Assets: Net assets $62,189,575
===========
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited number of
Consist of: shares authorized $51,999
Class B Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 481,741
Class C Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 13,514
Class D Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 14,462
Paid-in capital in excess of par 58,133,761
Accumulated realized capital losses on investments -- net (Note 5) (1,573,231)
Unrealized appreciation on investments -- net 5,067,329
-----------
Net assets $62,189,575
===========
Net Asset Value: Class A -- Based on net assets of $5,757,323 and 519,994 shares of
beneficial interest outstanding $11.07
===========
Class B -- Based on net assets of $53,335,618 and 4,817,405 shares of
beneficial interest outstanding $11.07
===========
Class C -- Based on net assets of $1,494,984 and 135,135 shares of
beneficial interest outstanding $11.06
===========
Class D -- Based on net assets of $1,601,650 and 144,619 shares of
beneficial interest outstanding $11.07
===========
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Year Ended
July 31, 1997
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned $3,910,891
(Note 1d):
Expenses: Investment advisory fees (Note 2) $355,290
Account maintenance and distribution fees -- Class B (Note 2) 280,454
Professional fees 58,231
Accounting services (Note 2) 40,593
Transfer agent fees -- Class B (Note 2) 29,824
Printing and shareholder reports 19,855
Registration fees (Note 1e) 17,200
Account maintenance and distribution fees -- Class C (Note 2) 9,407
Amortization of organization expenses (Note 1e) 5,938
Custodian fees 3,841
Pricing fees 3,783
Trustees' fees and expenses 3,290
Transfer agent fees -- Class A (Note 2) 2,414
Account maintenance fees -- Class D (Note 2) 1,356
Transfer agent fees -- Class C (Note 2) 813
Transfer agent fees -- Class D (Note 2) 582
-----------
Total expenses 832,871
-----------
Investment income -- net 3,078,020
-----------
Realized & Realized gain on investments -- net 121,207
Unrealized Gain on Change in unrealized appreciation on investments -- net 2,599,000
Investments -- Net -----------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $5,798,227
===========
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
For the Year Ended July 31,
Increase (Decrease) in Net Assets: 1997 1996
<S> <C> <C> <C>
Operations: Investment income -- net $3,078,020 $3,534,570
Realized gain (loss) on investments -- net 121,207 (120,826)
Change in unrealized appreciation on investments -- net 2,599,000 1,137,298
----------- -----------
Net increase in net assets resulting from operations 5,798,227 4,551,042
----------- -----------
Dividends to Investment income -- net:
Shareholders Class A (291,690) (338,974)
(Note 1f): Class B (2,644,286) (3,107,959)
Class C (72,540) (36,158)
Class D (69,504) (51,479)
----------- -----------
Net decrease in net assets resulting from dividends to shareholders (3,078,020) (3,534,570)
----------- -----------
Beneficial Interest Net decrease in net assets derived from beneficial
Transactions interest transactions (8,761,111) (7,525,610)
(Note 4): ----------- -----------
Net Assets: Total decrease in net assets (6,040,904) (6,509,138)
Beginning of year 68,230,479 74,739,617
----------- -----------
End of year $62,189,575 $68,230,479
=========== ===========
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
The following per share data and ratios have been derived Class A
from information provided in the financial statements.
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 year $10.60 $10.46 $10.48 $11.07 $10.68
Operating --------- --------- --------- --------- ---------
Performance: Investment income -- net .56 .56 .56 .58 .63
Realized and unrealized gain (loss) on
investments -- net .47 .14 (.02) (.43) .42
--------- --------- --------- --------- ---------
Total from investment operations 1.03 .70 .54 .15 1.05
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income -- net (.56) (.56) (.56) (.58) (.63)
Realized gain on investments -- net -- -- -- (.15) (.03)
In excess of realized gain on
investments -- net -- -- -- (.01) --
--------- --------- --------- --------- ---------
Total dividends and distributions (.56) (.56) (.56) (.74) (.66)
--------- --------- --------- --------- ---------
Net asset value, end of year $11.07 $10.60 $10.46 $10.48 $11.07
========= ========= ========= ========= =========
Total Investment Based on net asset value per share 10.02% 6.78% 5.35% 1.26% 10.08%
Return:* ========= ========= ========= ========= =========
Ratios to Average Expenses, net of reimbursement .83% .84% .88% .62% .42%
Net Assets: ========= ========= ========= ========= =========
Expenses .83% .84% .91% .85% .95%
========= ========= ========= ========= =========
Investment income -- net 5.22% 5.23% 5.42% 5.33% 5.75%
========= ========= ========= ========= =========
Supplemental Net assets, end of year (in thousands) $5,757 $5,887 $6,630 $8,367 $7,093
Data: ========= ========= ========= ========= =========
Portfolio turnover 24.64% 56.05% 89.62% 72.13% 39.37%
========= ========= ========= ========= =========
* Total investment returns exclude the effects of sales loads.
See Notes to Financial Statements.
<CAPTION>
The following per share data and ratios have been derived Class B
from information provided in the financial statements.
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 year $10.60 $10.46 $10.48 $11.07 $10.68
Operating --------- --------- --------- --------- ---------
Performance: Investment income -- net .51 .51 .50 .53 .57
Realized and unrealized gain (loss) on
investments -- net .47 .14 (.02) (.43) .42
--------- --------- --------- --------- ---------
Total from investment operations .98 .65 .48 .10 .99
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income -- net (.51) (.51) (.50) (.53) (.57)
Realized gain on investments -- net -- -- -- (.15) (.03)
In excess of realized gain on
investments -- net -- -- -- (.01) --
--------- --------- --------- --------- ---------
Total dividends and distributions (.51) (.51) (.50) (.69) (.60)
--------- --------- --------- --------- ---------
Net asset value, end of year $11.07 $10.60 $10.46 $10.48 $11.07
========= ========= ========= ========= =========
Total Investment Based on net asset value per share 9.46% 6.23% 4.82% .75% 9.53%
Return:* ========= ========= ========= ========= =========
Ratios to Average Expenses, net of reimbursement 1.34% 1.35% 1.39% 1.12% .93%
Net Assets: ========= ========= ========= ========= =========
Expenses 1.34% 1.35% 1.42% 1.36% 1.45%
========= ========= ========= ========= =========
Investment income -- net 4.71% 4.72% 4.91% 4.83% 5.24%
========= ========= ========= ========= =========
Supplemental Net assets, end of year (in thousands) $53,336 $59,868 $66,927 $76,436 $71,429
Data: ========= ========= ========= ========= =========
Portfolio turnover 24.64% 56.05% 89.62% 72.13% 39.37%
========= ========= ========= ========= =========
* Total investment returns exclude the effects of sales loads.
See Notes to Financial Statements.
<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: 1997 1996 1995 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of
Operating period $10.60 $10.46 $10.03 $10.61 $10.47 $10.03
Performance: -------- -------- -------- -------- -------- --------
Investment income -- net .49 .49 .37 .55 .55 .42
Realized and unrealized gain on
investments -- net .46 .14 .43 .46 .14 .44
-------- -------- -------- -------- -------- --------
Total from investment
operations .95 .63 .80 1.01 .69 .86
-------- -------- -------- -------- -------- --------
Less dividends from investment
income -- net (.49) (.49) (.37) (.55) (.55) (.42)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $11.06 $10.60 $10.46 $11.07 $10.61 $10.47
========= ========= ========= ========= ========= =========
Total Investment Based on net asset value per
Return:** share 9.25% 6.12% 8.13%++ 9.80% 6.67% 8.70%++
========= ========= ========= ========= ========= =========
Ratios to Average Expenses 1.43% 1.45% 1.56%* .93% .94% 1.04%*
Net Assets: ========= ========= ========= ========= ========= =========
Investment income -- net 4.63% 4.61% 4.68%* 5.13% 5.12% 5.22%*
========= ========= ========= ========= ========= =========
Supplemental Net assets, end of period
Data: (in thousands) $1,495 $1,185 $432 $1,602 $1,290 $750
========= ========= ========= ========= ========= =========
Portfolio turnover 24.64% 56.05% 89.62% 24.64% 56.05% 89.62%
========= ========= ========= ========= ========= =========
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of Operations.
++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Massachusetts Municipal Bond Fund July 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. 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.
[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.
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 Merill Lynch Funds Distributor, Inc. ("MLFD" or "Distributor"), a
wholly-owned subsidiary of Merrill Lynch Group, Inc.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee based upon the average daily value
of the Fund's net assets at the following annual rates: 0.55% of the
Fund's average daily net assets not exceeding $500 million; 0.525% of
average daily net assets in excess of $500 million but not exceeding
$1 billion; and 0.50% of average daily net assets in excess of $1
billion.
Pursuant to the distribution plans (the "Distribution Plans") adopted by
the Fund in accordance with Rule 12b-1 under the Investment Company Act
of 1940, the Fund pays the Distributor ongoing account maintenance and
distribution fees. The fees are accrued daily and paid monthly at annual
rates based upon the average daily net assets of the shares as follows:
Account
Maintenance Distribution
Fee Fee
Class B 0.25% 0.25%
Class C 0.25% 0.35%
Class D 0.10% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce,
Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co., also provides
account maintenance and distribution services to the Fund. The ongoing
account maintenance fee compensates the Distributor and MLPF&S for
providing account maintenance services to Class B, Class C and Class D
shareholders. The ongoing distribution fee compensates the Distributor
and MLPF&S for providing shareholder and distribution-related services
to Class B and Class C shareholders.
For the year ended July 31, 1997, MLFD earned underwriting discounts and
MLPF&S earned dealer concessions on sales of the Fund's Class A and
Class D Shares as follows:
MLFD MLPF&S
Class A $40 $490
Class D $314 $2,505
For the year ended July 31, 1997, MLPF&S received contingent deferred
sales charges of $84,387 and $1,089 relating to transactions in Class B
and Class C Shares, respectively.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-owned
subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of FAM, PSI, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for
the year ended July 31, 1997 were $14,969,794 and $21,153,593,
respectively.
Net realized and unrealized gains as of July 31, 1997 were as follows:
Realized Unrealized
Gains Gains
Long-term investments $121,207 $5,067,329
---------- ----------
Total $121,207 $5,067,329
========== ==========
As of July 31, 1997, net unrealized appreciation for Federal income tax
purposes aggregated $5,067,329, of which $5,182,592 related to
appreciated securities and $115,263 related to depreciated securities.
The aggregate cost of investments at July 31, 1997 for Federal income
tax purposes was $56,582,944 .
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest transactions
was $8,761,111 and $7,525,610 for the years ended July 31, 1997 and July
31, 1996, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 65,128 $698,880
Shares issued to shareholders
in reinvestment of dividends 10,205 109,410
---------- ----------
Total issued 75,333 808,290
Shares redeemed (110,522) (1,182,114)
---------- ----------
Net decrease (35,189) $(373,824)
========== ==========
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 Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 376,343 $4,032,484
Shares issued to shareholders
in reinvestment of dividends 129,316 1,386,347
---------- ----------
Total issued 505,659 5,418,831
Automatic conversion of shares (10,414) (111,368)
Shares redeemed (1,323,351) (14,184,469)
---------- -----------
Net decrease (828,106) $(8,877,006)
========== ===========
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 Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 107,995 $1,154,305
Shares issued to shareholders
in reinvestment of dividends 5,142 55,085
---------- -----------
Total issued 113,137 1,209,390
Shares redeemed (89,795) (970,551)
---------- -----------
Net increase 23,342 $238,839
========== ===========
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 Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 33,863 $366,272
Automatic conversion of shares 10,412 111,368
Shares issued to shareholders
in reinvestment of dividends 843 9,054
---------- -----------
Total issued 45,118 486,694
Shares redeemed (22,113) (235,814)
---------- -----------
Net increase 23,005 $250,880
========== ===========
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, 1997, the Fund had a net capital loss carryforward of
approximately $1,154,000, all of which expires in 2003. This amount will
be available to offset like amounts of any future taxable gains.
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, 1997, the related statements of operations for the year
then ended and changes in net assets for each of the years in the two-
year period then ended, and the financial highlights for each of the
years in the 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, 1997 by correspondence with
the custodian. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Merrill Lynch Massachusetts Municipal Bond Fund of Merrill Lynch Multi-
State Municipal Series Trust as of July 31, 1997, the results of its
operations, the changes in its net assets, and the financial highlights
for the respective stated periods in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
September 5, 1997
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, 1997 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.
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
Robert E. Putney III, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
