MERRILL
LYNCH
MARYLAND
MUNICIPAL
BOND FUND
Annual Report July 31, 1994
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.
Merrill Lynch Maryland
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, New Jersey
08543-9011
<PAGE>
TO OUR SHAREHOLDERS
The expectation of increasing inflationary pressures and higher
interest rates initially heightened investor concerns and increased
financial market volatility during the July quarter. However, as the
quarter progressed, it was the weakness of the US dollar in foreign
exchange markets that dominated the financial news and prolonged
stock and bond market declines. Although the US dollar had
strengthened slightly by July quarter-end, which may have improved
investor confidence in the stock and bond markets, the possibility
of continued tightening by the Federal Reserve Board resurfaced
following Chairman Alan Greenspan's recent congressional testimony.
Nevertheless, as the quarter drew to a close, a lower-than-expected
rate of growth reported for the US economy during the second
calendar quarter allayed investor concerns and led to stock and bond
market rallies.
During the July quarter, the US dollar's weakness relative to other
major currencies reflected the deteriorating US trade deficit and
widening net long-term capital outflows. In 1993, an expanding US
economy and recession in other industrial countries led to a higher
level of imports and weaker export growth, widening the US trade
deficit further. In addition, global investors favored non-US dollar
denominated assets throughout 1993, which has further depressed the
dollar's value. This trend is not improving significantly thus far
in 1994 since foreign inflows into US capital markets continue to
decline, although US investors are investing outside of the United
States to a lesser degree.
Over the longer term, if the economies of the United States' major
trading partners expand (improving the prospects for US export
growth), the outlook for the US dollar is likely to improve. In the
near term, central banks have attempted to reverse the dollar's
decline through currency market intervention. These efforts have met
with limited success thus far, giving rise to the concern that the
Federal Reserve Board will be forced to continue to raise short-term
interest rates to attract investment capital back to the United
States and bolster the dollar's value. However, further interest
rate increases may jeopardize the US economic expansion. Despite
evidence of a moderating trend in the US economy, Federal Reserve
Board Chairman Alan Greenspan indicated in his July Humphrey-Hawkins
testimony that the central bank would prefer to err on the side of
too much monetary tightening rather than too little. In the weeks
ahead, investors will continue to assess economic data and
inflationary trends as they focus on the US dollar in order to gauge
whether further increases in short-term interest rates are imminent.
Continued indications of moderate and sustainable levels of economic
growth would be positive for the US capital markets.
<PAGE>
The Municipal Market
Long-term tax-exempt bond yields ended the July quarter essentially
unchanged. The Bond Buyer Revenue Bond Index rose five basis points
(0.05%) to 6.47%. The Index, however, failed to capture the dramatic
bond rally on July 29, 1994, when municipal bond yields had their
largest one-day decline thus far this year. Responding to reports of
a continued mild inflationary outlook and a potentially weakening
economy, municipal bond yields declined by approximately 10 basis
points. US Treasury bonds displayed a similar pattern over the last
three months, ending with an equally dramatic rally on July 29,
1994. Long-term US Treasury bonds ended the quarter yielding
approximately 7.40%.
The tax-exempt bond market has continued to be very volatile with
yields fluctuating by as much as 15 basis points from week to week.
This continued volatility is largely a reflection of the same lack
of conviction regarding the near-term direction of interest rates
that has prevailed for much of 1994. Throughout this past quarter,
the municipal bond market had been unable to maintain a consensus
regarding either the potential strength of the current economic
recovery or the resultant response by the Federal Reserve Board.
However, a number of economic indicators released in late July began
to suggest that the robust pace of recent economic growth was
slowing. This promoted a more positive market environment,
culminating in the market rally on July 29.
The municipal bond market's technical position has remained
supportive. Approximately $40 billion in long-term securities were
issued during the three months ended July 31, 1994. This represents
a decline of over 50% versus the July quarter from the previous
year. As discussed in earlier reports, this reduction in new-issue
supply has minimized the selling pressure by larger institutional
investors who fear being unable to purchase sizable amounts of
securities in the future. Such a significant decline in issuance
would normally be expected to trigger a decline in yields as
investors chase a commodity in scarce supply. Investor demand,
however, has also diminished somewhat in recent months as net flows
into long-term municipal bond funds have dramatically slowed or, in
some instances, reversed. Consequently, the supply/demand
relationship within the municipal bond market has remained in
balance, promoting the overall stability in yield levels seen in the
past months.
<PAGE>
With after-tax equivalents in excess of 10%, long-term tax-exempt
bonds continue to represent considerable value relative to other
investment alternatives. We continue to anticipate that municipal
bond yields will decline further in late 1994 and into 1995. The
economic impact of the significant interest rate increases
experienced since early February have yet to be totally realized.
The resultant drag on the economy should provide the foundation for
further interest rate declines. Under such a scenario, current tax-
exempt bond yields may prove to represent considerable value.
Fiscal Year In Review
Since the Fund commenced operations on October 29, 1993, the
municipal bond market has been on a downward trend. The yield on the
Bond Buyer 40 Bond Index increased from 5.48% on the Fund's
commencement date to 6.33% as of July 31, 1994. The Fund's high
concentration of discount bonds has caused it to underperform
relative to the municipal bond market as a whole. With the extreme
municipal bond market volatility during the July quarter, our
strategy was to maintain a competitive yield. To achieve this goal,
we continued to purchase bonds with maturities exceeding 15 years
(because of the positively sloped yield curve), as well as bonds
that are investment-grade.
The municipal bond market in Maryland has seen very little activity
during the July quarter. This is mainly because of the small amount
of new issues coming to market in Maryland tax-exempt bonds. As we
receive new subscriptions, we purchase bonds with yields matching or
exceeding those that are currently owned by the Fund to seek to
maintain the Fund's current yield. Responding to conflicting
economic data, we became more cautious, sold discount coupons and
bought current coupons or premium coupons in order to curtail some
of the volatility that occurred during the July quarter.
We appreciate your ongoing interest in Merrill Lynch Maryland
Municipal Bond Fund, and we look forward to serving your investment
needs and objectives in the months and years to come.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Vice President and Portfolio Manager
<PAGE>
August 23, 1994
IMPORTANT TAX INFORMATION
All of the net investment income distributions paid monthly by
Merrill Lynch Maryland Municipal Bond Fund during its taxable year
ended July 31, 1994 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.
PERFORMANCE DATA
None of the past results shown should be considered a representation
of future performance. Investment return and principal value of
Class A and Class B Shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Aggregate Total Return--Class A Shares*
% Return Without % Return With
Sales Charge Sales Charge**
Inception (10/29/93)
through 6/30/94 -6.48% -10.22%
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
GRAPHIC MATERIAL APPEARS HERE. SEE APPENDIX,
GRAPHIC AND IMAGE MATERIAL: Item 1.
Aggregate Total Return--Class B Shares*
<PAGE>
% Return % Return
Without CDSC With CDSC**
Inception (10/29/93)
through 6/30/94 -6.79% -10.79%
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced
to 0% after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
GRAPHIC MATERIAL APPEARS HERE. SEE APPENDIX,
GRAPHIC AND IMAGE MATERIAL: Item 2.
PERFORMANCE DATA (concluded)
<TABLE>
Recent Performance Results*
<CAPTION>
Since Inception 3 Month
7/31/94 4/30/94 10/29/93** % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares $9.20 $9.12 $10.00 -8.00% +0.88%
Class B Shares 9.20 9.11 10.00 -8.00 +0.99
Class A Shares--Total Return -4.32(1) +2.31(2)
Class B Shares--Total Return -4.68(3) +2.29(4)
Class A Shares--Standardized 30-day Yield 5.43%
Class B Shares--Standardized 30-day Yield 5.14%
<FN>
*Investment results shown for the 3-month and since inception
periods are before the deduction of any sales charges.
**Commencement of Operations.
(1)Percent change includes reinvestment of $0.364 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.129 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.327 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.118 per share ordinary
income dividends.
</TABLE>
PORTFOLIO ABBREVIATIONS
<PAGE>
To simplify the listings of Merrill Lynch Maryland
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.
ALEXS Adjustable Line Exempt Securities
AMT Alternative Minimum Tax (subject to)
BAN Bond Anticipation Notes
M/F Multi-Family
PCR Pollution Control Revenue Bonds
S/F Single-Family
STRIPES Short-Term Rate Inverse Payment Exempt Securities
TAN Tax Anticipation Notes
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)
Maryland--94.8%
<S> <S> <C> <S> <C>
AA+ Aa $ 400 Anne Arundel County, Maryland, Consolidated Water and Sewer Refunding Bonds,
5.30% due 4/15/2017 $ 366
A A2 500 Anne Arundel County, Maryland, PCR, Refunding (Baltimore Gas and Electric
Company Project), 6% due 4/01/2024 484
AA+ Aaa 500 Baltimore County, Maryland, Refunding Bonds (County Pension Funding), UT,
6.70% due 7/01/2016 526
NR Aal 400 Baltimore County, Maryland, Revenue Authority, Lease Revenue Refunding Bonds, 5%
due 10/01/2012 352
BBB+ Baal 500 Baltimore, Maryland, PCR (General Motors Corporation), 5.35% due 4/01/2008 471
AAA Aaa 1,130 Baltimore, Maryland, Revenue Refunding Bonds (Baltimore City Parking System
Facilities), 5% due 7/01/2018 (a) 962
AAA Aaa 700 Baltimore, Maryland, Revenue Refunding Bonds (Water Projects), Series A, 5% due
7/01/2024 (a) 586
A A2 500 Calvert County, Maryland, PCR, Refunding (Baltimore Gas and Electric Company
Project), 5.55% due 7/15/2014 462
AA- Aa 400 Carroll County, Maryland, Refunding Bonds, UT, 5.25% due 11/01/2012 364
AAA Aaa 500 Cumberland County, Maryland, Refunding Bonds, Series A, UT, 5.25% due 5/01/2021 (a) 442
<PAGE>
A1+ VMIG1 600 Howard County, Maryland, ALEXS, BAN, 2.75% due 7/01/1995 (b) 600
AA+ Aa1 515 Howard County, Maryland, Refunding Bonds (Consolidated Public Improvement),
Series A, UT, 5.25% due 8/15/2009 486
NR Aa 400 Maryland Community Development Administration, M/F Housing Revenue Refunding
Bonds, Insured Mortgage (Department of Housing and Community Development),
Series H, 5.60% due 5/15/2026 356
Maryland Health and Higher Educational Facilities Authority Revenue Bonds:
NR VMIG1 200 (Pooled Loan Program), Series A, VRDN, 2.25% due 4/01/2035 (b) 200
BBB Baa1 400 Refunding (Howard County General Hospital), 5.50% due 7/01/2013 349
A A 1,400 Refunding (Peninsula Regional Medical Center), 5% due 7/01/2023 1,115
AAA Aaa 625 (University of Maryland Medical Systems), Series B, 7% due 7/01/2022 (a) 718
AAA Aaa 500 Maryland State and Local Facilities Loan, Second Series BB, UT, 5.50% due
6/01/2009 491
A+ Al 1,500 Montgomery County, Maryland, PCR, Refunding (Potomac Electric Power Company),
5.37% due 2/15/2024 1,320
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Maryland (concluded)
<S> <S> <C> <S> <C>
NR A $ 515 Northeast Maryland, Waste Disposal Authority, Solid Waste Revenue Bonds
(Montgomery County Resource Recovery Project), Series A, AMT, 6.30% due 7/01/2016 $ 504
AA- A 500 Prince Georges County, Maryland, Consolidated Public Improvement Refunding Bonds,
5.25% due 10/01/2011 459
NR A 400 Prince Georges County, Maryland, Housing Authority, M/F Housing Revenue (Emerson
House Project), Series A, 7% due 4/15/2019 405
NR NR 300 Prince Georges County, Maryland, Housing Authority, Mortgage Revenue Bonds
(Laurel-Oxford), VRDN, 2.75% due 10/01/2007 (b) 300
AAA NR 1,000 Prince Georges County, Maryland, Housing Authority, S/F Mortgage Revenue Bonds,
Series A, AMT, 6.60% due 12/01/2025 (e) 1,005
NR A 500 Prince Georges County, Maryland, Revenue Refunding Bonds (Dimensions Health
Corporation Project), 5.30% due 7/01/2024 417
AA+ Aa 400 University of Maryland, System Auxiliary Facilities and Tuition Revenue Refunding
Bonds, Series C, 5% due 10/01/2011 355
<PAGE>
AAA Aaa 500 Washington, District of Columbia, Metropolitan Area Transportation Authority,
Gross Revenue Refunding Bonds, 5.25% due 7/01/2014 (a) 447
Washington Suburban Sanitation District, Maryland, General Construction
Bonds, UT:
AA Aa1 500 Refunding, 5% due 6/01/2014 441
AA Aa1 250 TAN, 7% due 12/01/1994 253
Puerto Rico--9.3%
A Baa1 400 Puerto Rico Commonwealth, Refunding Bonds, Series A, 6% due 7/01/2014 395
A- Baa1 250 Puerto Rico Electric Power Authority, Power Revenue Bonds, Refunding,
Series U, 6% due 7/01/2014 245
AAA Aaa 400 Puerto Rico Electric Power Authority, Power Revenue Bonds, Series T,
STRIPES, 8.142% due 7/01/2005 (c) (d) 416
NR Aaa 500 Puerto Rico, Industrial, Medical and Environmental Pollution Control
Facilities, Financing Authority Revenue Bonds, 5.10% due 12/01/2018 444
Total Investments (Cost--$17,900)--104.1% 16,736
Liabilities in Excess of Other Assets--(4.1%) (663)
-------
Net Assets--100.0% $16,073
=======
<FN>
(a)FGIC Insured.
(b)The interest rate is subject to change periodically based on
prevailing market rates. The interest rates shown are those in
effect at July 31, 1994.
(c)FSA Insured.
(d)The interest rate is subject to change periodically and inversely
based on prevailing market rates. The interest rates shown are those
in effect at July 31, 1994.
(e)GNMA/FNMA Insured.
Ratings shown have not been audited by Deloitte & Touche LLP.
NR--Not Rated.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of July 31, 1994
<CAPTION>
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$17,899,713) (Note 1a) $16,735,924
Cash 43,577
Receivables:
Interest $ 177,336
Investment adviser (Note 2) 120,242
Beneficial interest sold 75,602 373,180
-----------
Deferred organization expenses (Note 1e) 36,157
Prepaid expenses and other assets (Note 1e) 12,196
-----------
Total assets 17,201,034
===========
Liabilities: Payables:
Payable for securities purchased 1,000,000
Beneficial interest redeemed 43,481
Dividends to shareholders (Note 1f) 13,342
Distributor (Note 2) 5,975 1,062,798
-----------
Accrued expenses and other liabilities 65,327
-----------
Total liabilities 1,128,125
-----------
Net Assets: Net assets $16,072,909
===========
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited
Consist of: number of shares authorized $ 17,270
Class B Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized 157,427
Paid-in capital in excess of par 17,092,369
Accumulated realized capital losses--net (30,368)
Unrealized depreciation on investments--net (1,163,789)
-----------
Net assets $16,072,909
===========
Net Asset Class A--Based on net assets of $1,588,605 and 172,695 shares of
Value: beneficial interest outstanding $ 9.20
===========
Class B--Based on net assets of $14,484,304 and 1,574,272 shares of
beneficial interest outstanding $ 9.20
===========
<PAGE>
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Period
October 29, 1993++
to July 31, 1994
<S> <S> <C>
Investment Interest and amortization of premium and discount earned $ 532,707
Income
(Note 1d):
Expenses: Investment advisory fees (Note 2) 55,550
Distribution fees--Class B (Note 2) 44,448
Printing and shareholder reports 40,159
Accounting services (Note 2) 33,005
Registration fees (Note 1e) 16,102
Professional fees 10,508
Transfer agent fees--Class B (Note 2) 7,620
Amortization of organization expenses (Note 1e) 6,442
Custodian fees 5,401
Pricing fees 2,569
Transfer agent fees--Class A (Note 2) 890
Trustees' fees and expenses 204
Other 286
-----------
Total expenses 223,184
Reimbursement of expenses (Note 2) (175,792)
-----------
Total expenses after reimbursement 47,392
-----------
Investment income--net 485,315
-----------
Realized & Realized loss on investments--net (30,368)
Unrealized Unrealized depreciation on investments--net (1,163,789)
Loss on -----------
Investments Net Decrease in Net Assets Resulting from Operations $ (708,842)
- --Net (Notes ===========
1d & 3):
<FN>
++Commencement of Operations.
<PAGE>
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Period
October 29, 1993++
Increase (Decrease) in Net Assets: to July 31, 1994
<S> <S> <C>
Operations: Investment income--net $ 485,315
Realized loss on investments--net (30,368)
Unrealized depreciation on investments--net (1,163,789)
-----------
Net decrease in net assets resulting from operations (708,842)
===========
Dividends to Investment income--net:
Shareholders Class A (64,177)
(Note 1f): Class B (421,138)
-----------
Net decrease in net assets resulting from dividends to shareholders (485,315)
-----------
Beneficial Net increase in net assets derived from capital share transactions 17,167,066
Interest -----------
Transactions
(Note 4):
Net Assets: Total increase in net assets 15,972,909
Beginning of period 100,000
-----------
End of period $16,072,909
===========
<FN>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived Class A
from information provided in the financial statements. For the Period
October 29, 1993++
Increase (Decrease) in Net Asset Value: to July 31, 1994
<S> <S> <C>
Per Share Net asset value, beginning of period $ 10.00
Operating -----------
Performance: Investment income--net .37
Realized and unrealized loss on investments--net (.80)
-----------
Total from investment operations (.43)
-----------
Less dividends from investment income--net (.37)
-----------
Net asset value, end of period $ 9.20
===========
Total Based on net asset value per share (4.32%)+++
Investment ===========
Return:**
Ratios to Expenses, net of reimbursement .03%*
Average ===========
Net Assets: Expenses 1.76%*
===========
Investment income--net 5.30%*
===========
Supplemental Net assets, end of period (in thousands) $ 1,589
Data: ===========
Portfolio turnover 29.40%
===========
<FN>
++Commencement of Operations.
+++Aggregate total investment return.
*Annualized.
**Total investment returns exclude the effects of sales loads.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
The following per share data and ratios have been derived Class B
from information provided in the financial statements. For the Period
October 29, 1993++
Increase (Decrease) in Net Asset Value: to July 31, 1994
<S> <S> <C>
Per Share Net asset value, beginning of period $ 10.00
Operating -----------
Performance: Investment income--net .33
Realized and unrealized loss on investments--net (.80)
-----------
Total from investment operations (.47)
-----------
Less dividends from investment income--net (.33)
-----------
Net asset value, end of period $ 9.20
===========
Total Based on net asset value per share (4.68%)+++
Investment ===========
Return:**
Ratios to Expenses, excluding distribution fees and net of reimbursements .03%*
Average ===========
Net Assets: Expenses, net of reimbursement .53%*
===========
Expenses 2.27%*
===========
Investment income--net 4.74%*
===========
Supplemental Net assets, end of period (in thousands) $ 14,484
Data: ===========
Portfolio turnover 29.40%
===========
<FN>
++Commencement of Operations.
+++Aggregate total investment return.
*Annualized.
**Total investment returns exclude the effects of sales loads.
See Notes to Financial Statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Maryland 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. Prior to
commencement of operations on October 29, 1993, the Fund had no
operations other than those relating to organizational matters and
the issuance of 5,000 Class A Shares of beneficial interest and
5,000 Class B Shares of beneficial interest of the Fund to Fund
Asset Management, L.P. ("FAM") for $100,000. The Fund offers both
Class A and Class B Shares. Class A Shares are sold with a front-end
sales charge. Class B Shares may be subject to a contingent deferred
sales charge. Both classes of shares have identical voting,
dividend, liquidation and other rights and the same terms and
conditions, except that Class B Shares bear certain expenses related
to the distribution of such shares and have exclusive voting rights
with respect to matters relating to such 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 a remaining maturity of sixty days or less are
valued on an amortized cost basis, which approximates market value.
Options, which are traded on exchanges, are valued at their last
sale price as of the close of such exchanges or, lacking any sales,
at the last available bid price. 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.
<PAGE>
(b) 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.
<PAGE>
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with FAM.
Effective January 1, 1994, the investment advisory business of FAM
was reorganized from a corporation to a limited partnership. Both
prior to and after the reorganization, ultimate control of FAM was
vested with Merrill Lynch & Co., Inc. ("ML & Co."). The general
partner of FAM is Princeton Services, Inc. ("PSI"), an indirect
wholly-owned subsidiary of ML & Co. The limited partners are ML & Co.
and Fund Asset Management, Inc. ("FAMI"), which is also an indirect
wholly-owned subsidiary of ML & Co. The Fund has also entered into
Distribution Agreements and a Distribution Plan with Merrill Lunch
Funds Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Investment Management, Inc. ("MLIM"),
which is also an indirect wholly-owned subsidiary of ML & Co.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee based upon the average daily
value of the Fund's net assets at the following annual rates: 0.55%
of the Fund's average daily net assets not exceeding $500 million;
0.525% of average daily net assets in excess of $500 million but not
exceeding $1 billion; and 0.50% of average daily net assets in
excess of $1 billion. For the period October 29, 1993 to July 31,
1994, FAM earned fees of $55,550, all of which was voluntarily
waived. FAM also voluntarily reimbursed the Fund additional expenses
of $120,242.
The Fund has adopted a Plan of Distribution (the "Plan") in
accordance with Rule 12b-1 under the Investment Company Act of 1940,
pursuant to which the Fund pays the Distributor an ongoing account
maintenance fee and distribution fees relating to Class B Shares,
which are accrued daily and paid monthly at the annual rates of
0.25% and 0.25%, respectively, of the average daily net assets of
the Class B Shares of the Fund. Pursuant to a sub-agreement with the
Distributor, Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S"),
an affilitate 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 shareholders. The
distribution fee is to compensate the Distributor for services
provided and the expenses borne by the Distributor under the
Distribution Agreement. As authorized by the Plan, the Distributor
has entered into an agreement with MLPF&S, which provides for the
\compensation of MLPF&S for providing distribution-related services
to the Fund. For the period October 29, 1993 to July 31, 1994, MLFD
earned underwriting discounts of $2,668, and MLPF&S earned dealer
concessions of $54,822 on sales of the Fund's Class A Shares.
<PAGE>
MLPF&S also received contingent deferred sales charges of $9,047
relating to Class B Share transactions during the period.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of FAM, FAMI, PSI, MLIM, MLFD, FDS, MLPF&S, and/or ML &
Co.
NOTES TO FINANCIAL STATEMENTS (concluded)
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the period ended July 31, 1994 were $19,777,594 and $3,481,821,
respectively.
Net realized and unrealized gains (losses) as of July 31, 1994 were
as follows:
Realized Unrealized
Gains (Losses) Losses
Long-term investments $ (146,038) $(1,163,789)
Short-term investments 141 --
Financial futures contracts 115,529 --
----------- -----------
Total $ (30,368) $(1,163,789)
=========== ===========
As of July 31, 1994, net unrealized depreciation for Federal income
tax purposes aggregated $1,163,789, of which $56,591 related to
appreciated securities and $1,220,380 related to depreciated
securities. The aggregate cost of investments at July 31, 1994 for
Federal income tax purposes was $17,899,713.
4. Beneficial Interest Transactions:
Net increase in net assets derived from beneficial interest
transactions was $17,167,066 for the period ended July 31, 1994.
Transactions in shares of beneficial interest for Class A and Class
B Shares were as follows:
<PAGE>
Class A Shares for the Period Dollar
Oct. 29, 1993++ to July 31, 1994 Shares Amount
Shares sold 386,420 $ 3,845,684
Shares issued to shareholders
in reinvestment of dividends
and distributions 4,247 39,820
----------- -----------
Total issued 390,667 3,885,504
Shares redeemed (222,972) (2,132,507)
----------- -----------
Net increase 167,695 $ 1,752,997
=========== ===========
[FN]
++Prior to October 29, 1993 (commencement of operations), the Fund
issued 5,000 shares to FAM for $50,000.
Class B Shares for the Period Dollar
Oct. 29, 1993++ to July 31, 1994 Shares Amount
Shares sold 1,674,753 $16,422,297
Shares issued to shareholders
in reinvestment of dividends
and distributions 19,843 187,176
----------- -----------
Total issued 1,694,596 16,609,473
Shares redeemed (125,324) (1,195,404)
----------- -----------
Net increase 1,569,272 $15,414,069
=========== ===========
[FN]
++Prior to October 29, 1993 (commencement of operations), the Fund
issued 5,000 shares to FAM for $50,000.
<PAGE>
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
Merrill Lynch Maryland 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
Maryland Municipal Bond Fund of Merrill Lynch Multi-State Municipal
Series Trust as of July 31, 1994, the related statements of
operations and changes in net assets, and the financial highlights
for the period October 29, 1993 (commencement of operations) to July
31, 1994. 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 audit.
We conducted our audit 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,
1994 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides
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 Maryland Municipal Bond Fund of Merrill Lynch Multi-
State Municipal Series Trust as of July 31, 1994, the results of its
operations, the changes in its net assets, and the financial
highlights for the period October 29, 1993 to July 31, 1994 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
August 29, 1994
<AUDIT-REPORT>
OFFICERS AND TRUSTEES
Arthur Zeikel, President and Trustee
Kenneth S. Axelson, Trustee
Herbert I. London, Trustee
Robert R. Martin, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Terry K. Glenn, Executive Vice President
Donald C. Burke, Vice President
Vincent R. Giordano, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Jerry Weiss, Secretary
<PAGE>
Custodian
National Westminster Bank NJ
Exchange Place Centre
10 Exchange Place
Jersey City, New Jersey 07302
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
APPENDIX: GRAPHIC AND IMAGE MATERIAL.
Item 1:
Total Return Based on a $10,000 Investment--Class A Shares*
A line graph depicting the growth of an investment in the Fund's Class A
Shares compared to growth of an investment in the Lehman Brothers Municipal
Bond Index. Beginning and ending values are:
<PAGE>
10/29/93** 7/94
ML Maryland Municipal
Bond Fund++ $ 9,600 $ 9,186
Lehman Brothers
Municipal Bond Index++++ $10,000 $ 9,848
[FN]
*Assuming maximum sales charge, transaction costs and other operating
expenses including advisory fees.
**Commencement of Operations.
++ML Maryland Municipal Bond Fund invests primarily in long-term investment-
grade obligations issued by or on behalf of the State of Maryland, 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.
<PAGE>
Item 2:
Total Return Based on a $10,000 Investment--Class B Shares*
A line graph depicting the growth of an investment in the Fund's Class B
Shares compared to growth of an investment in the Lehman Brothers Municipal
Bond Index. Beginning and ending values are:
10/29/93** 7/94
ML Maryland Municipal
Bond Fund++ $10,000 $ 9,164
Lehman Brothers
Municipal Bond Index++++ $10,000 $ 9,848
[FN]
*Assuming maximum sales charge, transaction costs and other operating
expenses including advisory fees.
**Commencement of Operations.
++ML Maryland Municipal Bond Fund invests primarily in long-term investment-
grade obligations issued by or on behalf of the State of Maryland, 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.
