MERRILL
LYNCH
MINNESOTA
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 Minnesota
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
The year ended July 31, 1994 was a volatile and unsettled time. For
the first half of the Fund's fiscal year, interest rates continued
to decline as the economy showed signs of slow growth. The Bond
Buyer Revenue Bond Index yield declined to 5.41%, and the bellwether
30-year Treasury bond yield declined to 5.75%. During this period,
the Fund was fully invested in performance-oriented municipal bonds.
After economic results of a surprisingly strong fourth quarter were
released, the market was compelled to reverse course. Within the
next few months, the Federal Reserve Board raised interest rates
four times. Because of these actions, the Bond Buyer Revenue Bond
Index yield rose to 6.60% and the 30-year bond yield rose to
approximately 7.75%. In response, we restructured the portfolio in a
more defensive posture. The Fund was able to raise cash and buy
higher-coupon securities to seek to preserve shareholders' capital.
During this turbulent time, we emphasized quality securities with
79% of the portfolio rated A or better. More recently, the municipal
bond market has settled into a trading range which has allowed the
Fund to take advantage of purchasing higher-coupon securities, thus
giving shareholders a competitive level of tax-exempt income. This
strategy has helped improve the performance of the Fund in a rising
interest rate environment. Demand for Minnesota municipal bonds is
strong as supply volume remains low. In addition, new-issue
municipal bond supply in Minnesota is down 60% for the three-month
period ended July 31, 1994 compared to the same quarter last year.
The supply picture has allowed the Minnesota sector of the tax-
exempt market to continue to outperform the general market. Looking
forward, we will continue to invest new money in high-quality,
attractively priced securities which are expected to yield generous
amounts of tax-exempt income while seeking superior price
appreciation.
We appreciate your ongoing interest in Merrill Lynch Minnesota
Municipal Bond Fund, and we look forward to assisting you with your
financial needs in the months and years ahead.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
<PAGE>
(Vincent R. Giordano)
Vincent R. Giordano
Vice President and Portfolio Manager
August 24, 1994
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.
Average Annual Total Return--Class A Shares*
% Return Without % Return With
Sales Charge Sales Charge**
Year Ended 6/30/94 +0.47% -3.55%
Inception (3/27/92)
through 6/30/94 +7.34 +5.41
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
GRAPHIC MATERIAL APPEARS HERE. SEE APPENDIX,
GRAPHIC AND IMAGE MATERIAL: Item 1.
Average Annual Total Return--Class B Shares*
% Return % Return
Without CDSC With CDSC**
Year Ended 6/30/94 - 0.13% - 3.88%
Inception (3/27/92)
through 6/30/94 +6.75 +5.93
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced
to 0% after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
<PAGE>
GRAPHIC MATERIAL APPEARS HERE. SEE APPENDIX,
GRAPHIC AND IMAGE MATERIAL: Item 2.
PERFORMANCE DATA (concluded)
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
3/27/92--12/31/92 $10.00 $10.34 -- $0.500 + 8.56%
1993 10.34 10.92 $0.081 0.636 + 12.81
1/1/94--7/31/94 10.92 10.33 -- 0.311 - 2.45
------ ------
Total $0.081 Total $1.447
Cumulative total return as of 7/31/94: +19.46%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date, and do not
include sales charge; results would be lower if sales charge was
included.
</TABLE>
<TABLE>
Performance Summary--Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
3/27/92--12/31/92 $10.00 $10.34 -- $0.460 + 8.13%
1993 10.34 10.92 $0.081 0.581 + 12.24
1/1/94--7/31/94 10.92 10.33 -- 0.281 - 2.73
------ ------
Total $0.081 Total $1.322
Cumulative total return as of 7/31/94: +18.06%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
<PAGE>
<TABLE>
Recent Performance Results*
<CAPTION>
12 Month 3 Month
7/31/94 4/30/94 7/31/93 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares $10.33 $10.19 $10.83 - 3.91%(1) +1.37%
Class B Shares 10.33 10.19 10.83 - 3.91(1) +1.37
Class A Shares--Total Return + 1.87(2) +2.73(3)
Class B Shares--Total Return + 1.35(4) +2.60(5)
Class A Shares--Standardized 30-day Yield 5.13%
Class B Shares--Standardized 30-day Yield 4.84%
<FN>
*Investment results shown for the 3-month and 12-month periods are
before the deduction of any sales charges.
(1)Percent change includes reinvestment of $0.081 per share capital
gains distributions.
(2)Percent change includes reinvestment of $0.627 per share ordinary
income dividends and $0.081 per share capital gains distributions.
(3)Percent change includes reinvestment of $0.137 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.572 per share ordinary
income dividends and $0.081 per share capital gains distributions.
(5)Percent change includes reinvestment of $0.124 per share ordinary
income dividends.
</TABLE>
PORTFOLIO ABBREVIATIONS
To simplify the listings of Merrill Lynch Minnesota 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)
EDA Economic Development Authority
FHA Federal Housing Administration
GO Government Obligation Bonds
HFA Housing Finance Authority
IDR Industrial Development Revenue Bonds
IRS Interest Residual Securities
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Minnesota--98.6%
<S> <S> <C> <S> <C>
NR A $1,475 Alexandria, Minnesota, Independent School District No. 206, UT, Series A, 6.30%
due 2/01/2010 $ 1,525
A1+ Aa3 2,225 Anoka County, Minnesota, Solid Waste Disposal Revenue Bonds (National Rural
Utilities), AMT, Series A, 6.95% due 12/01/2008 2,353
A1+ NR 900 Beltrami County, Minnesota, Environmental Control Revenue Refunding Bonds
(Northwood Panelboard), VRDN, 2.75% due 12/01/2021 (a) 900
NR A1 660 Blaine, Minnesota, EDA, Public Project, Revenue Refunding Bonds, Bank Qualified,
Series A, 6.25% due 12/01/2010 (f) 676
Carver County, Minnesota, Housing and Redevelopment Authority Revenue Bonds
(Jail Facilities), Series A (d):
AAA Aaa 370 6.35% due 2/01/2005 390
AAA Aaa 395 6.40% due 2/01/2006 418
Chaska, Minnesota, Independent School District No. 112, UT, Series B:
AA Aa 1,825 5.75% due 2/01/2008 1,830
AA Aa 1,925 5.75% due 2/01/2009 1,912
NR Baa1 1,000 Clay County, Minnesota, Housing and Redevelopment Authority, Lease Revenue Bonds,
Bank Qualified, 6.50% due 2/01/2014 980
AAA NR 3,530 Coon Rapids, Minnesota, M/F Housing Revenue Refunding Bonds (Browns Meadow),
AMT, 6.85% due 8/01/2033 (h) 3,569
AAA NR 1,500 Duluth, Minnesota, EDA, Hospital Facilities Revenue Refunding Bonds (Saint Luke's
Hospital of Duluth), Series B, 6.40% due 5/01/2018 (c) 1,527
A-1+ VMIG1 1,150 Duluth, Minnesota, Tax Increment Revenue Bonds (Lake Superior Paper), VRDN, 3% due
9/01/2010 (a) 1,150
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Minnesota (continued)
<S> <S> <C> <S> <C>
BBB+ NR $2,000 Fergus Falls, Minnesota, Health Care Facilities, Revenue Refunding Bonds (Lake
Region Hospital Corporation Project), Series A, 6.50% due 9/01/2018 $ 1,934
A1+ NR 500 Hubbard County, Minnesota, Solid Waste Disposal Revenue Bonds (Potlatch
Corporation Project), AMT, VRDN, 2.90% due 8/01/2014 (a) 500
A A 1,500 Metropolitan Council, Minnesota, Minneapolis--Saint Paul Area, Sports Facilities
Revenue Refunding Bonds (Hubert H. Humphrey Metrodome), 6% due 10/01/2009 1,538
A- A 2,000 Minneapolis and Saint Paul, Minnesota, Housing and Redevelopment Authority,
Health Care System Revenue Bonds (Group Health Plan Incorporated Project), 6.90%
due 10/15/2022 2,070
AA- A1 200 Minneapolis, Minnesota, Community Development Agency, PCR (Collateral-Northern
States Power Co. Project), VRDN, 2.85% due 3/01/2011 (a) 200
NR VMIG1 1,500 Minneapolis, Minnesota, Community Development Agency Revenue Bonds (Riverplace
Project--Pinnacle Apartments), VRDN, 3.10% due 2/01/2012 (a) 1,500
AAA Aaa 3,000 Minneapolis, Minnesota, Hospital Revenue Refunding Bonds (Fairview Hospital and
Healthcare), Series A, 6.50% due 1/01/2011 (d) 3,131
AAA Aaa 1,500 Minneapolis, Minnesota, Refunding, Sales Tax GO, UT, 6.25% due 4/01/2012 1,607
AA+ NR 1,300 Minnesota Public Facilities Authority, Water, PCR, Series A, 6.50% due 3/01/2014 1,410
AAA NR 1,000 Minnesota State GO, UT, 6.625% due 8/01/2001 (g) 1,090
Minnesota State HFA, S/F Mortgage:
AA+ Aa 750 AMT, Series E, 6.85% due 1/01/2024 760
AA+ Aa 950 Series A, 6.95% due 7/01/2016 977
AA+ Aa 1,715 Series D-1, 6.50% due 1/01/2017 1,716
Minnesota State Higher Educational Facilities Authority, Mortgage Revenue Bonds:
AAA NR 1,000 (Augsburg College), Series 3G, 6.50% due 1/01/2011 (c) 1,035
NR Baa 1,000 Refunding (Saint Mary's College), Series 3Q, 6.15% due 10/01/2023 992
Minnesota State Higher Educational Facilities Authority Revenue Bonds:
NR Baa 1,500 (College State Benedict), Series 3W, 6.375% due 3/01/2020 1,491
AA- NR 550 Refunding (Macalester College), Series 3J, 6.30% due 3/01/2014 564
AA- NR 1,250 Refunding (Macalester College), Series 3J, 6.40% due 3/01/2022 1,284
BBB+ NR 1,085 (Saint John's University), Series 3H, 6.10% due 10/01/2002 1,116
A A 890 Northern Minnesota Municipal Power Agency, Electric System Revenue Refunding
Bonds, Series A, 7.25% due 1/01/2016 969
<PAGE>
NR A 500 Northfield, Minnesota, College Facilities Revenue Refunding Bonds (Saint Olaf
College Project), 6.40% due 10/01/2021 523
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Minnesota (concluded)
<S> <S> <C> <S> <C>
AA- A1 $ 800 Red Wing, Minnesota, PCR (Northern States Power Company Project), VRDN, 2.25%
due 3/01/2011 (a) $ 800
Rochester, Minnesota, Health Care Facilities Revenue Bonds:
AA+ NR 3,450 (Mayo Foundation), IRS, Series H, RIB, 8.674% due 11/15/2015 (i) 3,290
AA+ NR 1,500 (Mayo Foundation/Mayo Medical Center), Series D, 6.25% due 11/15/2012 1,508
Saint Paul, Minnesota, Housing and Redevelopment Authority Revenue Bonds:
A- NR 1,750 Parking, Series A, 6.55% due 8/01/2012 1,746
A A 3,175 Sales Tax (Civic Center Project), 5.55% due 11/01/2023 2,954
AAA NR 980 S/F Mortgage, Refunding, Series C, 6.95% due 12/01/2031 (e) 1,002
AA Aa 1,325 Saint Paul, Minnesota, Independent School District No. 625, Minnesota School
District, UT, 5.90% due 2/01/2011 1,327
AA+ Aa 1,025 Saint Paul, Minnesota, Tax Increment Refunding Bonds, GO, UT (Riverfront),
Series C, 5.90% due 2/01/2012 1,029
BBB Baa1 990 Sartell, Minnesota, IDR, Refunding (Champion International), 6.95% due
7/01/2012 1,023
BBB Baa1 665 Sartell, Minnesota, PCR, Refunding (Champion International), 6.95% due
10/01/2012 682
A+ A1 1,500 Southern Minnesota, Municipal Power Agency, Power Supply Systems, Revenue
Refunding Bonds, Series A, 4.75% due 1/01/2016 1,242
Western Minnesota Municipal Power Agency, Power Supply Revenue Refunding Bonds,
Series A:
AAA Aaa 820 6.375% due 1/01/2016 (f) 866
A A 850 6.875% due 1/01/2007 900
A A 1,000 7% due 1/01/2013 1,062
AAA Aaa 1,750 Willmar, Minnesota, Independent School District No. 347, GO, UT,
Series C, 6.25% due 2/01/2015 (b) 1,781
<PAGE>
Total Investments (Cost--$63,296)--98.6% 64,849
Other Assets Less Liabilities--1.4% 920
-------
Net Assets--100.0% $65,769
=======
<FN>
(a)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at July 31, 1994.
(b)AMBAC Insured.
(c)Insured by Connie Lee.
(d)MBIA Insured.
(e)FNMA Collateralized.
(f)Escrowed to Maturity.
(g)Prerefunded.
(h)FHA Insured.
(i)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, 1994.
NR--Not Rated.
Ratings of issues shown have not been audited by Deloitte & Touche
LLP.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of July 31, 1994
<CAPTION>
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$63,296,239) (Note 1a) $64,849,356
Cash 93,538
Receivables:
Interest $ 1,013,098
Beneficial interest sold 54,976 1,068,074
-----------
Deferred organization expenses (Note 1e) 21,394
Prepaid registration fees and other assets (Note 1e) 35,147
-----------
Total assets 66,067,509
-----------
<PAGE>
Liabilities: Payables:
Beneficial interest redeemed 89,856
Dividends to shareholders (Note 1f) 53,542
Distributor (Note 2) 23,956
Investment adviser (Note 2) 13,830 181,184
-----------
Accrued expenses and other liabilities 117,049
-----------
Total liabilities 298,233
-----------
Net Assets: Net assets $65,769,276
===========
Net Assets Class A--Shares of beneficial interest, $.10 par value, unlimited number of
Consist of: shares authorized $ 85,253
Class B--Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 551,181
Paid-in capital in excess of par 64,389,665
Accumulated distribution in excess of realized capital gains--net (809,940)
Unrealized appreciation on investments--net 1,553,117
-----------
Net assets $65,769,276
===========
Net Asset Class A--Based on net assets of $8,809,698 and 852,534 shares of
Value: beneficial interest outstanding $ 10.33
===========
Class B--Based on net assets of $56,959,578 and 5,511,809 shares of
beneficial interest outstanding $ 10.33
===========
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the
Year Ended
July 31, 1994
<S> <S> <C>
Investment Interest and amortization of premium and discount earned $ 3,990,977
Income -----------
(Note 1d):
<PAGE>
Expenses: Investment advisory fees (Note 2) 371,950
Distribution fees--Class B (Note 2) 287,028
Printing and shareholder reports 101,557
Professional fees 78,926
Accounting services (Note 2) 58,120
Transfer agent fees--Class B (Note 2) 33,037
Registration fees (Note 1e) 19,255
Custodian fees 13,813
Amortization of organization expenses (Note 1e) 8,075
Pricing fees 7,173
Transfer agent fees--Class A (Note 2) 5,085
Trustees' fees and expenses 3,065
Other 3,417
-----------
Total expenses before reimbursement 990,501
Reimbursement of expenses (Note 2) (227,573)
-----------
Total expenses after reimbursement 762,928
-----------
Investment income--net 3,228,049
-----------
Realized & Realized loss on investments--net (135,210)
Unrealized Change in unrealized appreciation on investments--net (2,079,420)
Gain (Loss) -----------
on Invest- Net Increase in Net Assets Resulting from Operations $ 1,013,419
ments--Net ===========
(Notes
1d & 3):
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year
Ended July 31,
Increase (Decrease) in Net Assets: 1994 1993
<S> <S> <C> <C.
Operations: Investment income--net $ 3,228,049 $ 2,813,091
Realized gain (loss) on investments--net (135,210) 289,144
Change in unrealized appreciation on investments--net (2,079,420) 1,726,579
----------- -----------
Net increase in net assets resulting from operations 1,013,419 4,828,814
----------- -----------
<PAGE>
Dividends & Investment income--net:
Distributions Class A (529,859) (605,885)
to Shareholders Class B (2,698,190) (2,207,206)
(Note 1f): Realized gain on investments--net:
Class A -- (47,086)
Class B -- (182,537)
In excess of realized gain on investments--net:
Class A (124,483) --
Class B (819,198) --
----------- -----------
Net decrease in net assets resulting from dividends and distributions
to shareholders (4,171,730) (3,042,714)
----------- -----------
Beneficial Net increase in net assets derived from beneficial interest transactions 1,147,471 23,815,104
Interest ----------- -----------
Transactions
(Note 4):
Net Assets: Total increase (decrease) in net assets (2,010,840) 25,601,204
Beginning of year 67,780,116 42,178,912
----------- -----------
End of year $65,769,276 $67,780,116
=========== ===========
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<PAGE>
<TABLE>
Financial Highlights
<CAPTION>
Class A Class B
For the For the
Period Period
The following per share data and ratios have been derived Mar. 27, Mar. 27,
from information provided in the financial statements. For the Year 1992++ to For the Year 1992++ to
Ended July 31, July 31, Ended July 31, July 31,
Increase (Decrease) in Net Asset Value: 1994 1993 1992 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.83 $ 10.58 $ 10.00 $ 10.83 $ 10.58 $ 10.00
Operating -------- -------- -------- -------- -------- --------
Performance: Investment income--net .55 .58 .20 .50 .53 .18
Realized and unrealized gain (loss)
on investments--net (.35) .30 .58 (.35) .30 .58
-------- -------- -------- -------- -------- --------
Total from investment operations .20 .88 .78 .15 .83 .76
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.55) (.58) (.20) (.50) (.53) (.18)
Realized gain on investments--net -- (.05) -- -- (.05) --
In excess of realized gain on
investments--net (.15) -- -- (.15) -- --
-------- -------- -------- -------- -------- --------
Total dividends and distributions (.70) (.63) (.20) (.65) (.58) (.18)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 10.33 $ 10.83 $ 10.58 $ 10.33 $ 10.83 $ 10.58
======== ======== ======== ======== ======== ========
Total Based on net asset value per share 1.87% 8.71% 7.88%+++ 1.35% 8.16% 7.69%+++
Investment ======== ======== ======== ======== ======== ========
Return:**
Ratios to Expenses, excluding distribution fees
Average and net of reimbursement .69% .45% .12%* .71% .46% .12%*
Net Assets: ======== ======== ======== ======== ======== ========
Expenses, net of reimbursement .69% .45% .12%* 1.21% .96% .62%*
======== ======== ======== ======== ======== ========
Expenses 1.03% 1.04% 1.18%* 1.54% 1.55% 1.70%*
======== ======== ======== ======== ======== ========
Investment income--net 5.18% 5.56% 5.73%* 4.70% 5.03% 5.13%*
======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 8,810 $12,859 $ 9,493 $56,960 $54,921 $32,686
Data: ======== ======== ======== ======== ======== ========
Portfolio turnover 58.67% 23.83% 30.39% 58.67% 23.83% 30.39%
======== ======== ======== ======== ======== ========
<PAGE>
<FN>
++Commencement of Operations.
+++Aggregate total investment return.
*Annualized.
**Total investment returns exclude the effects of sales loads.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Minnesota 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
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. 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.
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(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 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"). 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 Distri-
bution Agreements and a Distribution Plan with Merrill Lynch 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.
<PAGE>
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee based upon the average daily
value of the Fund's net assets at the following annual rates: 0.55%
of the Fund's average daily net assets not exceeding $500 million;
0.525% of average daily net assets in excess of $500 million but not
exceeding $1 billion; and 0.50% of average daily net assets in
excess of $1 billion. The Investment Advisory Agreement obligates
FAM to reimburse the Fund to the extent the Fund's expenses
(excluding interest, taxes, distribution fees, brokerage fees and
commissions, and extraordinary items) exceed 2.5% of the Fund's
first $30 million of average daily net assets, 2.0% of the next $70
million of average daily net assets, and 1.5% of the average daily
net assets in excess thereof. FAM's obligation to reimburse the Fund
is limited to the amount of the management fee. No fee payment will
be made to the Investment Adviser during any fiscal year which will
cause such expenses to exceed expense limitation at the time of such
payment. For the year ended July 31, 1994, FAM earned fees of
$371,950, of which $227,573 was voluntarily waived.
Pursuant to a distribution plan (the "Distribution Plan") 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, 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") also provides account maintenance
and distribution services to the Fund. As authorized by the Plan,
the Distributor has entered into an agreement with MLPF&S, an
affiliate of FAM, which provides for the compensation of MLPF&S for
providing distribution-related services to the Fund.
For the year ended July 31, 1994, MLFD earned underwriting discounts
of $2,219, and MLPF&S earned dealer concessions of $22,776 on sales
of the Fund's Class A Shares.
MLPF&S also received contingent deferred sales charges of $127,261
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.
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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.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended July 31, 1994 were $37,069,448 and $39,784,618,
respectively.
Net realized and unrealized gains (losses) as of July 31, 1994 were
as follows:
Realized
Gains Unrealized
(Losses) Gains
Long-term investments $ (699,323) $ 1,553,117
Financial futures contracts 564,113 --
----------- -----------
Total $ (135,210) $ 1,553,117
=========== ===========
As of July 31, 1994, net unrealized appreciation for Federal income
tax purposes aggregated $1,553,117, of which $1,869,871 related to
appreciated securities and $316,754 related to depreciated
securities. The aggregate cost of investments at July 31, 1994 for
Federal income tax purposes was $63,296,239.
NOTES TO FINANCIAL STATEMENTS (concluded)
4. Beneficial Interest Transactions:
The net increase in net assets derived from beneficial interest
transactions was $1,147,471 and $23,815,104 for the years ended July
31, 1994 and July 31, 1993, respectively.
Transactions in shares of beneficial interest for Class A and Class
B Shares were as follows:
Class A Shares for the Dollar
Year Ended July 31, 1994 Shares Amount
Shares sold 243,419 $ 2,584,540
Shares issued to shareholders
in reinvestment of dividends
and distributions 27,404 294,088
----------- -----------
Total issued 270,823 2,878,628
Shares redeemed (606,053) (6,559,427)
----------- -----------
Net decrease (335,230) $(3,680,799)
=========== ===========
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Class A Shares for the Year Dollar
Ended July 31, 1993 Shares Amount
Shares sold 449,628 $ 4,746,475
Shares issued to shareholders
in reinvestment of dividends
and distributions 22,621 237,123
----------- -----------
Total issued 472,249 4,983,598
Shares redeemed (182,088) (1,944,283)
----------- -----------
Net increase 290,161 $ 3,039,315
=========== ===========
Class B Shares for the Dollar
Year Ended July 31, 1994 Shares Amount
Shares sold 891,996 $ 9,650,171
Shares issued to shareholders
in reinvestment of dividends
and distributions 192,941 2,070,989
----------- -----------
Total issued 1,084,937 11,721,160
Shares redeemed (646,073) (6,892,890)
----------- -----------
Net increase 438,864 $ 4,828,270
=========== ===========
Class B Shares for the Year Dollar
Ended July 31, 1993 Shares Amount
Shares sold 2,119,718 $22,234,514
Shares issued to shareholders
in reinvestment of dividends
and distributions 135,413 1,420,514
----------- -----------
Total issued 2,255,131 23,655,028
Shares redeemed (272,815) (2,879,239)
----------- -----------
Net increase 1,982,316 $20,775,789
=========== ===========
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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
Custodian
National Westminster Bank NJ
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
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
Merrill Lynch Minnesota 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
Minnesota Municipal Bond Fund of Merrill Lynch Multi-State Municipal
Series Trust as of July 31, 1994, 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 two-year period
then ended and for the period March 27, 1992 (commencement of
operations) to July 31, 1992. These financial statements and the
financial highlights are the responsibility of the Fund's management.
Our responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
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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,
1994 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 Minnesota 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 respective stated periods in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
August 29, 1994
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION
All of the net investment income distributions paid monthly by
Merrill Lynch Minnesota Municipal Bond Fund during its taxable year
ended July 31, 1994 qualify as tax-exempt interest dividends for
Federal income tax purposes.
Additionally, the Fund distributed short-term capital gains of
$.071022 per share and long-term capital gains of $.081377 per share
to shareholders of record on December 22, 1993.
Please retain this information for your records.
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>
3/27/92** 7/94
ML Minnesota Municipal
Bond Fund++ $ 9,600 $11,468
Lehman Brothers Municipal
Bond Index++++ $10,000 $11,853
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses including advisory fees.
**Commencement of Operations.
++ML Minnesota Municipal Bond Fund invests primarily in
long-term investment-grade obligations issued by or on behalf of
the State of Minnesota, its political subdivisions,
agencies and instrumentalities.
++++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:
3/27/92** 7/94
ML Minnesota Municipal
Bond Fund++ $10,000 $11,606
Lehman Brothers Municipal
Bond Index++++ $10,000 $11,853
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses including advisory fees.
**Commencement of Operations.
++ML Minnesota Municipal Bond Fund invests primarily in
long-term investment-grade obligations issued by or on behalf of
the State of Minnesota, its political subdivisions,
agencies and instrumentalities.
++++This unmanaged Index consists of long-term revenue bonds,
prerefunded bonds, general obligation bonds and insured bonds.
<PAGE>
