MERRILL LYNCH
MINNESOTA
MUNICIPAL
BOND FUND
[FUND LOGO]
STRATEGIC
Performance
Semi-Annual Report
January 31, 1997
Officers and Trustees
Arthur Zeikel, President and Trustee
James H. Bodurtha, Trustee
Herbert I. London, Trustee
Robert R. Martin, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Terry K. Glenn, Executive Vice President
Vincent R. Giordano, Senior Vice President
Donald C. Burke, Vice President
Kenneth A. Jacob, Vice President
Robert D. Sneeden, Vice President
Gerald M. Richard, Treasurer
Jerry Weiss, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
This report is not authorized for use as an offer of sale
or a solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and principal
value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Statements and other
information herein are as dated and are subject to change.
Merrill Lynch Minnesota
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, NJ
08543-9011 #16187 -- 1/97
Merrill Lynch Minnesota Municipal Bond Fund January 31, 1997
TO OUR SHAREHOLDERS
The Municipal Market Environment
Long-term fixed-income bond yields generally declined over the six
months ended January 31, 1997. Initially, US Treasury bond yields
declined over 45 basis points (0.45%) to 6.45% by late November as low
employment growth and continued low inflation combined to support lower
bond yields. Concurrently, long-term municipal revenue bond yields, as
measured by the Bond Buyer Revenue Bond Index, declined over 20 basis
points to approximately 5.80%. However, signs of increased economic
activity and renewed inflation fears pushed bond yields up for the
remainder of the period. By the end of January 1997, US Treasury bond
yields rose 35 basis points to end the period at approximately 6.80%.
Similarly, long-term municipal revenue bond yields rose approximately 20
basis points from their lows in late November to approximately 6.00%.
During the six months ended January 31, 1997, US Treasury bond yields
declined approximately 10 basis points, while tax-exempt bond yields
were essentially unchanged.
Recently, tax-exempt bond yields underperformed their taxable
counterparts despite a continued strong supply position. During the six-
month period ended January 31, 1997, over $88 billion in long-term tax-
exempt bonds was underwritten, essentially unchanged from issuance a
year ago. Approximately $50 billion in new municipal bonds was issued
during the three-month period ended January 31, 1997, representing a
decline of over 5% compared to the same period in 1996. This declining
trend in bond issuance was even more apparent recently. Slightly more
than $10 billion in long-term bonds was issued in January 1997, a
decrease of over 15% compared to January 1996 issuance.
The municipal bond market's recent underperformance relative to Treasury
issues was the result of a number of other factors. The historic
strength of the US equity market has attracted significant investor
interest. Additionally, as tax-exempt bond yields declined again below
6%, some investors temporarily lost interest in the municipal bond
market. If interest rates continue to decline, as they did at the end of
1994 and throughout 1995, investors, in general, will quickly adjust to
the new levels. The tax advantages generated by municipal bonds quickly
outweigh low nominal yields and investor demand increases.
The Presidential and Congressional elections this past November
resurrected some investor concerns regarding continued Federal deficit
reduction and potential legislative restrictions upon the municipal bond
market. This situation was similar to that at the beginning of 1996 when
tax-exempt bond yields were negatively impacted by fears that
legislation reducing the tax advantage of municipal bonds would be
introduced to aid further deficit reductions.
However, the US Treasury bond market's recent relatively strong
performance resulted in municipal bonds becoming a particularly
attractive investment alternative. At current levels, long-term tax-
exempt revenue bonds yield over 88% of comparable US Treasury bond
yields. Current levels make tax-advantaged products more attractive than
they were at mid-year when yield ratios declined to approximately 85%.
For example, to an investor in the 36% Federal income tax bracket, a
current tax-exempt bond yield of 6% represents a taxable equivalent
yield of approximately 9.37%.
Looking forward, the supply of new bond issuance for 1997 is expected to
be very similar to that of 1996, with most annual estimates falling in
the $170 billion -- $175 billion range. Investor demand is also expected
to regain its former strength, with 1997 total municipal redemptions
(refundings, maturities and coupon payments) in the $175 billion -- $185
billion range. This overall balance suggests that the positive technical
backdrop the municipal bond market enjoyed in 1996 could continue in
1997. However, it is likely that seasonal factors may temporarily
distort this overall balanced technical scenario. During periods of
reduced bond issuance, the ease and ability to purchase tax-advantaged
products at their current attractive levels may be greatly restricted.
Portfolio Strategy
During the six-month period ended January 31, 1997, we primarily
maintained the defensive posture of the Fund which we adopted in mid-
1996. Our principal strategy was to favor higher-couponed issues over
more interest rate-sensitive securities that have greater potential for
capital appreciation. We believed that tax-exempt interest rates would
fluctuate in a broad range and larger-couponed securities would offer
both greater principal preservation and generous tax-exempt income. In
addition, we maintained minimal cash reserves in recent months to
further augment shareholder income.
New long-term bond issuance in Minnesota was lower than that in the
national marketplace. During the six months ended January 31, 1997, over
$1.6 billion in municipal bonds was issued by Minnesota municipalities,
a decline of 5.0% compared to the same period in 1996. Likewise, during
the three months ended January 31, 1997, just over $750 million in
municipal bonds was issued in Minnesota, a decline of 23.5% compared to
same period in 1996. This decline in new bond supply was perhaps the
major determining factor in our decision to maintain a fully invested
position.
We believe that economic growth should slow by mid-1997, perhaps aided
by an increase in interest rates by the Federal Reserve Board. Slower
growth, combined with continued low inflation, may result in materially
lower interest rates. Additionally, the prospect for further Federal
deficit reduction may provide a positive backdrop for more significant
declines in long-term bond yields. Signs that such a scenario is
developing would trigger us to move to a more aggressive strategy for
the Fund, utilizing more interest rate-sensitive issues in order to
enhance the Fund's principal appreciation. At the same time, however, we
will still seek to generate an attractive level of tax-exempt income.
In Conclusion
We appreciate your ongoing interest in Merrill Lynch Minnesota Municipal
Bond Fund, and we look forward to serving your investment needs in the
months and years ahead.
Sincerely,
/S/ARTHUR ZEIKEL
Arthur Zeikel
President
/S/VINCENT R. GIORDANO
Vincent R. Giordano
Senior Vice President
/S/ROBERT D. SNEEDEN
Robert D. Sneeden
Portfolio Manager
March 10, 1997
We are pleased to announce that Robert D. Sneeden is responsible for the
day-to-day management of Merrill Lynch Minnesota Municipal Bond Fund.
Mr. Sneeden has been employed by Merrill Lynch Asset Management, L.P.
(an affiliate of the Fund's investment adviser) since 1994 as Portfolio
Manager. Prior thereto, he was Vice President with Lehman Brothers from
1990 to 1994.
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill
Lynch Select PricingSM System, which offers four pricing alternatives:
(bullet) Class A Shares incur a maximum initial sales charge (front-end
load) of 4% and bear no ongoing distribution or account maintenance
fees. Class A Shares are available only to eligible investors.
(bullet) Class B Shares are subject to a maximum contingent deferred
sales charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B Shares
are subject to a distribution fee of 0.25% and an account maintenance
fee of 0.25%. These shares automatically convert to Class D Shares after
approximately 10 years. (There is no initial sales charge for automatic
share conversions.)
(bullet) Class C Shares are subject to a distribution fee of 0.35% and
an account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within one
year of purchase.
(bullet) Class D Shares incur a maximum initial sales charge of 4% and
an account maintenance fee of 0.10% (but no distribution fee).
None of the past results shown should be considered a representation of
future performance. Investment return and principal value of shares will
fluctuate so that shares, when redeemed, may be worth more or less than
their original cost. Dividends paid to each class of shares will vary
because of the different levels of account maintenance, distribution and
transfer agency fees applicable to each class, which are deducted from
the income available to be paid to shareholders.
<TABLE>
<CAPTION>
Recent Performance Results
12 Month 3 Month
1/31/97 10/31/96 1/31/96 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $10.43 $10.39 $10.68 -2.34% +0.38%
Class B Shares* 10.43 10.39 10.68 -2.34 +0.38
Class C Shares* 10.43 10.40 10.68 -2.34 +0.29
Class D Shares* 10.44 10.40 10.68 -2.25 +0.38
Class A Shares -- Total Return* +2.77(1) +1.70(2)
Class B Shares -- Total Return* +2.24(3) +1.57(4)
Class C Shares -- Total Return* +2.14(5) +1.45(6)
Class D Shares -- Total Return* +2.76(7) +1.68(8)
Class A Shares -- Standardized 30-day Yield 4.46%
Class B Shares -- Standardized 30-day Yield 4.14%
Class C Shares -- Standardized 30-day Yield 4.03%
Class D Shares -- Standardized 30-day Yield 4.36%
* 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 $0.533 per share ordinary income dividends.
(2) Percent change includes reinvestment of $0.142 per share ordinary income dividends.
(3) Percent change includes reinvestment of $0.480 per share ordinary income dividends.
(4) Percent change includes reinvestment of $0.128 per share ordinary income dividends.
(5) Percent change includes reinvestment of $0.469 per share ordinary income dividends.
(6) Percent change includes reinvestment of $0.125 per share ordinary income dividends.
(7) Percent change includes reinvestment of $0.523 per share ordinary income dividends.
(8) Percent change includes reinvestment of $0.140 per share ordinary income dividends.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class A Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
3/27/92 -- 12/31/92 $10.00 $10.34 -- $0.500 + 8.55%
1993 10.34 10.92 $0.081 0.636 +12.81
1994 10.92 9.69 -- 0.558 - 6.27
1995 9.69 10.69 -- 0.550 +16.33
1996 10.69 10.45 -- 0.527 + 2.84
1/1/97 -- 1/31/97 10.45 10.43 -- 0.038 + 0.26
Total $0.081 Total $2.809
Cumulative total return as of 1/31/97: +37.66%**
* 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>
<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>
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
1994 10.92 9.70 -- 0.506 - 6.65
1995 9.70 10.69 -- 0.497 +15.62
1996 10.69 10.45 -- 0.474 + 2.31
1/1/97 -- 1/31/97 10.45 10.43 -- 0.034 + 0.21
Total $0.081 Total $2.552
Cumulative total return as of 1/31/97: +34.31%**
* Figures may include short-term capital gains distributions.
** Figures assume reinvestment of all dividends and capital gains distributions at net asset value on the payable
date, and do not reflect deduction of any sales charge; results would be lower if sales charge was deducted.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class C Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94 -- 12/31/94 $9.99 $9.70 -- $0.095 - 1.94%
1995 9.70 10.69 -- 0.485 +15.49
1996 10.69 10.45 -- 0.463 + 2.21
1/1/97 -- 1/31/97 10.45 10.43 -- 0.034 + 0.21
Total $1.077
Cumulative total return as of 1/31/97: +15.99%**
* Figures may include short-term capital gains distributions.
** Figures assume reinvestment of all dividends and capital gains distributions at net asset value on the payable
date, and do not reflect deduction of any sales charge; results would be lower if sales charge was deducted.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class D Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94 -- 12/31/94 $9.99 $9.70 -- $0.106 - 1.83%
1995 9.70 10.70 -- 0.540 +16.20
1996 10.70 10.46 -- 0.517 + 2.74
1/1/97 -- 1/31/97 10.46 10.44 -- 0.037 + 0.25
Total $1.200
Cumulative total return as of 1/31/97: +17.49%**
* Figures may include short-term capital gains distributions.
** Figures assume reinvestment of all dividends and capital gains distributions at net asset value on the payable
date, and do not include sales charge; results would be lower if sales charge was included.
</TABLE>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/96 +2.84% -1.28%
Inception (3/27/92)
through 12/31/96 +6.88 +5.97
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/96 +2.31% -1.60%
Inception (3/27/92)
through 12/31/96 +6.34 +6.34
* Maximum contingent deferred sales charge is 4% and
is reduced to 0% after 4 years.
** Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 12/31/96 +2.21% +1.23%
Inception (10/21/94)
through 12/31/96 +6.89 +6.89
* Maximum contingent deferred sales charge is 1% and is reduced
to 0% after 1 year.
** Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 12/31/96 +2.74% -1.37%
Inception (10/21/94)
through 12/31/96 +7.50 +5.52
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
<TABLE>
<CAPTION>
Merrill Lynch Minnesota Municipal Bond Fund January 31, 1997
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <C> <C> <C> <C>
Minnesota -- 98.3%
NR* A3 $1,475 Alexandria, Minnesota, Independent School District No. 206, UT, Series A, 6.30% due
2/01/2003 (g) $1,593
A1+ Aa3 2,225 Anoka County, Minnesota, Solid Waste Disposal Revenue Bonds (National Rural Utilities),
AMT, Series A, 6.95% due 12/01/2008 2,394
A1+ NR* 400 Beltrami County, Minnesota, Environmental Control Revenue Refunding Bonds
(Northwood Panelboard Co. Project), VRDN, 12.90% due 12/01/2021 (a) 400
NR* Baa1 1,000 Clay County, Minnesota, Housing and Redevelopment Authority, Lease Revenue Bonds,
6.50% due 2/01/2014 1,020
A- NR* 1,000 Cloquet, Minnesota, PCR, Refunding (Potlatch Corporation Projects), 5.90% due 10/01/2026 1,005
AAA NR* 3,530 Coon Rapids, Minnesota, M/F Housing Revenue Refunding Bonds (Browns Meadow),
AMT, 6.85% due 8/01/2033 (h) 3,639
A1+ Aa3 1,000 Hubbard County, Minnesota, Solid Waste Disposal Revenue Bonds (Potlatch Corporation
Project), VRDN, AMT, 3.55% due 8/01/2014 (a) 1,000
NR* Aa 1,120 Maple Grove, Minnesota, GO, Improvement, UT, Series A, 5.20% due 2/01/2017 1,071
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 2,159
AAA Aaa 1,500 Minneapolis, Minnesota, Sales Tax Refunding Bonds, GO, UT, 6.25% due 4/01/2012 1,592
AAA Aaa 1,300 Minnesota Public Facilities Authority, Water, PCR, Series A, 6.50% due 3/01/2014 1,401
AAA Aaa 2,250 Minnesota Public Facilities Authority, Water, PCR, Series B, 5% due 3/01/2017 2,114
AA+ Aaa 1,500 Minnesota State, GO, UT, 6% due 10/01/2014 1,556
Minnesota State, HFA, S/F Mortgage:
AA+ Aa 1,750 AMT, Series E, 6.85% due 1/01/2024 1,818
AA Aa 1,450 AMT, Series L, 6.70% due 7/01/2020 1,498
AA+ Aa 830 Series A, 6.95% due 7/01/2016 874
AA+ Aa 1,620 Series D-1, 6.50% due 1/01/2017 1,678
AAA NR* 1,000 Minnesota State Higher Educational Facilities Authority, Mortgage Revenue Bonds
(Augsburg College), Series 3-G, 6.50% due 1/01/2011 (c) 1,051
Minnesota State Higher Educational Facilities Authority, Revenue Refunding Bonds
(Macalester College), Series 3-J:
AA- Aa 550 6.30% due 3/01/2014 578
AA- Aa 2,250 6.40% due 3/01/2022 2,374
AA Aa1 2,000 North Saint Paul, Minnesota, Maplewood Independent School District No. 622, Refunding
Bonds, UT, Series A, 5.12% due 2/01/2020 1,903
A A 890 Northern Minnesota Municipal Power Agency, Electric System Revenue Refunding Bonds,
Series A, 7.25% due 1/01/2016 943
NR* A 500 Northfield, Minnesota, College Facilities Revenue Refunding Bonds (Saint Olaf College
Project), 6.40% due 10/01/2021 527
AAA Aaa 1,000 Prior Lake, Minnesota, Independent School District No. 719, UT, Series A, 5.25%
due 2/01/2016 (f) 959
AA- A1 400 Red Wing, Minnesota, PCR (Northern States Power Company Project), VRDN, 3.50%
due 3/01/2011 (a) 400
AA+ NR* 3,450 Rochester, Minnesota, Health Care Facilities Revenue Bonds (Mayo Foundation), IRS,
Series H, 8.20% due 11/15/2015 (i) 3,635
AAA Aaa 1,000 Saint Francis, Minnesota, Independent School District No. 015, UT, Series A, 6.35% due
2/01/2013 (j) 1,068
Saint Paul, Minnesota, Housing and Redevelopment Authority Revenue Bonds:
A- NR* 1,750 Parking, Series A, 6.55% due 8/01/2000 (g) 1,897
A NR* 3,175 Sales Tax (Civic Center Project), 5.55% due 11/01/2023 (d) 3,151
AAA NR* 880 S/F Mortgage, Refunding, Series C, 6.95% due 12/01/2031 (e) 914
AA Aa 1,125 Saint Paul, Minnesota, Independent School District No. 625, UT, Series B, 6.25%
due 2/01/2001 (g) 1,198
Sartell, Minnesota, Refunding (Champion International):
BBB Baa1 990 IDR, 6.95% due 7/01/2012 1,056
BBB Baa1 665 PCR, 6.95% due 10/01/2012 709
AAA Aaa 4,000 Southern Minnesota Municipal Power Agency, Power Supply Systems, Revenue Refunding
Bonds, Series A, 6.085%** due 1/01/2024 (b) 843
AAA Aaa 820 Western Minnesota Municipal Power Agency, Power Supply Revenue Bonds, Series A,
6.37% due 1/01/2016 (d) 884
Total Investments (Cost -- $48,040) -- 98.3% 50,902
Other Assets Less Liabilities -- 1.7% 888
-------
Net Assets -- 100.0% $51,790
=======
(a) The interest rate is subject to change periodically based upon prevailing market rates.
The interest rate shown is the rate in effect at January 31, 1997.
(b) MBIA Insured.
(c) Insured by Connie Lee.
(d) Escrowed to maturity.
(e) FNMA Collateralized.
(f) FGIC Insured.
(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 January 31, 1997.
(j) FSA Insured.
* Not Rated.
** Represents a zero coupon bond; the interest rate shown is the
effective yield at the time of purchase by the Fund.
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 below and at right.
AMT Alternative Minimum Tax (subject to)
GO General Obligation Bonds
HFA Housing Finance Agency
IDR Industrial Development Revenue Bonds
IRS Inverse Rate Securities
M/F Multi-Family
PCR Pollution Control Revenue Bonds
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of January 31, 1997
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $48,040,153)(Note 1a) $50,901,794
Cash 83,672
Receivables:
Interest $873,227
Beneficial interest sold 173,761 1,046,988
------------
Deferred organization expenses (Note 1e) 5,221
Prepaid registration fees and other assets (Note 1e) 20,046
-----------
Total assets 52,057,721
-----------
Liabilities: Payables:
Beneficial interest redeemed 103,694
Dividends to shareholders (Note 1f) 39,686
Investment adviser (Note 2) 24,956
Distributor (Note 2) 20,188 188,524
------------
Accrued expenses and other liabilities 79,161
-----------
Total liabilities 267,685
-----------
Net Assets: Net assets $51,790,036
===========
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited number of
Consist of: shares authorized $51,566
Class B Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 425,049
Class C Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 11,995
Class D Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 7,963
Paid-in capital in excess of par 50,382,269
Accumulated realized capital losses on investments -- net (Note 5) (1,140,507)
Accumulated distributions in excess of realized capital
gains -- net (Note 1f) (809,940)
Unrealized appreciation on investments -- net 2,861,641
-----------
Net assets $51,790,036
===========
Net Asset Value: Class A -- Based on net assets of $5,377,403 and 515,660 shares of
beneficial interest outstanding $10.43
===========
Class B -- Based on net assets of $44,330,407 and 4,250,487 shares of
beneficial interest outstanding $10.43
===========
Class C -- Based on net assets of $1,251,196 and 119,953 shares of
beneficial interest outstanding $10.43
===========
Class D -- Based on net assets of $831,030 and 79,629 shares of
beneficial interest outstanding $10.44
===========
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Six Months Ended
January 31, 1997
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned $1,643,893
(Note 1d):
Expenses: Investment advisory fees (Note 2) $150,727
Account maintenance and distribution fees -- Class B (Note 2) 117,863
Accounting services (Note 2) 30,813
Professional fees 30,508
Transfer agent fees -- Class B (Note 2) 16,036
Registration fees (Note 1e) 10,640
Printing and shareholder reports 8,744
Account maintenance and distribution fees -- Class C (Note 2) 3,696
Pricing fees 3,030
Amortization of organization expenses (Note 1e) 2,803
Custodian fees 2,212
Transfer agent fees -- Class A (Note 2) 1,607
Trustees' fees and expenses 1,494
Transfer agent fees -- Class C (Note 2) 426
Account maintenance fees -- Class D (Note 2) 387
Transfer agent fees -- Class D (Note 2) 219
Other 1,322
------------
Total expenses 382,527
--------------
Investment income -- net 1,261,366
--------------
Realized & Realized gain on investments -- net 89,302
Unrealized Gain on Change in unrealized appreciation on investments -- net 707,874
Investments -- Net --------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $2,058,542
==============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
Increase (Decrease) in Net Assets: Jan. 31, 1997 July 31, 1996
<S> <C> <C> <C>
Operations: Investment income -- net $1,261,366 $2,816,420
Realized gain (loss) on investments -- net 89,302 (284,411)
Change in unrealized appreciation on investments -- net 707,874 93,704
------------- -------------
Net increase in net assets resulting from operations 2,058,542 2,625,713
------------- -------------
Dividends to Investment income -- net:
Shareholders Class A (143,105) (331,165)
(Note 1f): Class B (1,071,694) (2,408,920)
Class C (27,385) (40,224)
Class D (19,182) (36,111)
------------- -------------
Net decrease in net assets resulting from dividends to shareholders (1,261,366) (2,816,420)
------------- -------------
Beneficial Interest Net decrease in net assets derived from beneficial interest transactions (5,490,487) (3,455,361)
Transactions ------------- -------------
(Note 4):
Net Assets: Total decrease in net assets (4,693,311) (3,646,068)
Beginning of period 56,483,347 60,129,415
------------- -------------
End of period $51,790,036 $56,483,347
============= =============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Class A
For the Six
The following per share data and ratios have been derived Months
from information provided in the financial statements. Ended
Jan. 31, For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.28 $10.31 $10.33 $10.83 $10.58
Operating ------ ------ ------ ------ -------
Performance: Investment income -- net .27 .54 .55 .55 .58
Realized and unrealized gain (loss) on
investments -- net .15 (.03) (.02) (.35) .30
------ ------ ------ ------ -------
Total from investment operations .42 .51 .53 .20 .88
------ ------ ------ ------ -------
Less dividends and distributions:
Investment income -- net (.27) (.54) (.55) (.55) (.58)
Realized gain on investments -- net -- -- -- -- (.05)
In excess of realized gain on
investments -- net -- -- -- (.15) --
------ ------ ------ ------ -------
Total dividends and distributions (.27) (.54) (.55) (.70) (.63)
------ ------ ------ ------ -------
Net asset value, end of period $10.43 $10.28 $10.31 $10.33 $10.83
====== ====== ====== ====== =======
Total Investment Based on net asset value per share 4.10%++ 4.98% 5.44% 1.87% 8.71%
Return:** ====== ====== ====== ====== =======
Ratios to Average Expenses, net of reimbursement .94%* .84% .75% .69% .45%
Net Assets: ====== ====== ====== ====== =======
Expenses .94%* .95% .92% 1.03% 1.04%
====== ====== ====== ====== =======
Investment income -- net 5.06%* 5.16% 5.51% 5.18% 5.56%
====== ====== ====== ====== =======
Supplemental Net assets, end of period (in thousands) $5,377 $5,884 $6,936 $8,810 $12,859
Data: ====== ====== ====== ====== =======
Portfolio turnover 8.07% 53.99% 22.36% 58.67% 23.83%
====== ====== ====== ====== =======
* Annualized.
** Total investment returns exclude the effect of sales loads.
++ Aggregate total investment return.
See Notes to Financial Statements.
<CAPTION>
Financial Highlights (continued)
Class B
For the Six
The following per share data and ratios have been derived Months
from information provided in the financial statements. Ended
Jan. 31, For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.28 $10.31 $10.33 $10.83 $10.58
Operating ------- ------- ------- ------- -------
Performance: Investment income -- net .24 .48 .50 .50 .53
Realized and unrealized gain (loss) on
investments -- net .15 (.03) (.02) (.35) .30
------- ------- ------- ------- -------
Total from investment operations .39 .45 .48 .15 .83
------- ------- ------- ------- -------
Less dividends and distributions:
Investment income -- net (.24) (.48) (.50) (.50) (.53)
Realized gain on investments -- net -- -- -- -- (.05)
In excess of realized gain on investments -- net -- -- -- (.15) --
------- ------- ------- ------- -------
Total dividends and distributions (.24) (.48) (.50) (.65) (.58)
------- ------- ------- ------- -------
Net asset value, end of period $10.43 $10.28 $10.31 $10.33 $10.83
======= ======= ======= ======= =======
Total Investment Based on net asset value per share 3.83%++ 4.44% 4.91% 1.35% 8.16%
Return:** ======= ======= ======= ======= =======
Ratios to Average Expenses, net of reimbursement 1.45%* 1.35% 1.27% 1.21% .96%
Net Assets: ======= ======= ======= ======= =======
Expenses 1.45%* 1.46% 1.44% 1.54% 1.55%
======= ======= ======= ======= =======
Investment income -- net 4.55%* 4.64% 5.00% 4.70% 5.03%
======= ======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $44,331 $48,696 $52,023 $56,960 $54,921
Data: ======= ======= ======= ======= =======
Portfolio turnover 8.07% 53.99% 22.36% 58.67% 23.83%
======= ======= ======= ======= =======
* Annualized.
** Total investment returns exclude the effect of sales loads.
++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights (concluded)
Class C
For the For the
Six For the Period
The following per share data and ratios have been derived Months Year Oct. 21,
from information provided in the financial statements. Ended Ended 1994+ to
Jan. 31, July 31, July 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995
<S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.28 $10.31 $9.99
Operating ------- ------- -------
Performance: Investment income-- net .24 .47 .37
Realized and unrealized gain (loss) on investments -- net .15 (.03) .32
------- ------- -------
Total from investment operations .39 .44 .69
------- ------- -------
Less dividends from investment income -- net (.24) (.47) (.37)
------- ------- -------
Net asset value, end of period $10.43 $10.28 $10.31
======= ======= =======
Total Investment Based on net asset value per share 3.78%++ 4.33% 7.13%++
Return:** ======= ======= =======
Ratios to Average Expenses, net of reimbursement 1.55%* 1.48% 1.46%*
Net Assets: ======= ======= =======
Expenses 1.55%* 1.57% 1.61%*
======= ======= =======
Investment income -- net 4.45%* 4.50% 4.70%*
======= ======= =======
Supplemental Net assets, end of period (in thousands) $1,251 $1,219 $375
Data: ======= ======= =======
Portfolio turnover 8.07% 53.99% 22.36%
======= ======= =======
<CAPTION>
Class D
For the For the
Six For the Period
The following per share data and ratios have been derived Months Year Oct. 21,
from information provided in the financial statements. Ended Ended 1994+ to
Jan. 31, July 31, July 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995
<S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.28 $10.31 $9.99
Operating ------- ------- -------
Performance: Investment income-- net .26 .53 .41
Realized and unrealized gain (loss) on investments -- net .16 (.03) .32
------- ------- -------
Total from investment operations .42 .50 .73
------- ------- -------
Less dividends from investment income -- net (.26) (.53) (.41)
------- ------- -------
Net asset value, end of period $10.44 $10.28 $10.31
======= ======= =======
Total Investment Based on net asset value per share 4.15%++ 4.88% 7.57%++
Return:** ======= ======= =======
Ratios to Average Expenses, net of reimbursement 1.04%* .94% .92%*
Net Assets: ======= ======= =======
Expenses 1.04%* 1.05% 1.07%*
======= ======= =======
Investment income -- net 4.96%* 5.05% 5.27%*
======= ======= =======
Supplemental Net assets, end of period (in thousands) $831 $684 $796
Data: ======= ======= =======
Portfolio turnover 8.07% 53.99% 22.36%
======= ======= =======
* Annualized.
** Total investment returns exclude the effect of sales loads.
+ Commencement of Operations.
++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Minnesota Municipal Bond Fund January 31, 1997
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. These unaudited
financial statements reflect all adjustments which are, in the opinion
of management, necessary to a fair statement of the results for the
interim period presented. All such adjustments are of a normal recurring
nature. The Fund offers four classes of shares under the Merrill Lynch
Select PricingSM System. Shares of Class A and Class D are sold with a
front-end sales charge. Shares of Class B and Class C may be subject to
a contingent deferred sales charge. All classes of shares have identical
voting, dividend, liquidation and other rights and the same terms and
conditions, except that Class B, Class C and Class D Shares bear certain
expenses related to the account maintenance of such shares, and Class B
and Class C Shares also bear certain expenses related to the
distribution of such shares. Each class has exclusive voting rights with
respect to matters relating to its account maintenance and distribution
expenditures. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments -- Municipal bonds and other portfolio
securities in which the Fund invests are traded primarily in the over-
the-counter municipal bond and money markets and are valued at the last
available bid price in the over-the-counter market or on the basis of
yield equivalents as obtained from one or more dealers that make markets
in the securities. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their settlement prices as
of the close of such exchanges. Short-term investments with remaining
maturities of sixty days or less are valued at amortized cost, which
approximates market value. Securities and assets for which market
quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of
Trustees of the Trust, including valuations furnished by a pricing
service retained by the Trust, which may utilize a matrix system for
valuations. The procedures of the pricing service and its valuations are
reviewed by the officers of the Trust under the general supervision of
the Trustees.
(b) Derivative financial instruments -- The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the counterparty
does not perform under the contract.
(bullet) Financial futures contracts -- The Fund may purchase or sell
interest rate futures contracts and options on such futures contracts
for the purpose of hedging the market risk on existing securities or the
intended purchase of securities. Futures contracts are contracts for
delayed delivery of securities at a specific future date and at a
specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required by
the exchange on which the transaction is effected. Pursuant to the
contract, the Fund agrees to receive from or pay to the broker an amount
of cash equal to the daily fluctuation in value of the contract. Such
receipts or payments are known as variation margin and are recorded by
the Fund as unrealized gains or losses. When the contract is closed, the
Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the
time it was closed.
(c) Income taxes -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its taxable
income to its shareholders. Therefore, no Federal income tax provision
is required.
(d) Security transactions and investment income -- Security transactions
are recorded on the dates the transactions are entered into (the trade
dates). Interest income is recognized on the accrual basis. Dis-
counts and market premiums are amortized into interest income. Realized
gains and losses on security transactions are determined on the
identified cost basis.
(e) Deferred organization expenses and prepaid registration fees --
Deferred organization expenses are charged to expense on a straight-line
basis over a five-year period. Prepaid registration fees are charged to
expense as the related shares are issued.
(f) Dividends and distributions -- Dividends from net investment income
are declared daily and paid monthly. Distributions of capital gains are
recorded on the ex-dividend dates. Distributions in excess of realized
capital gains are due primarily to differing tax treatments for futures
transactions and post- October losses.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is Princeton
Services, Inc. ("PSI"), an indirect wholly-owned subsidiary of Merrill
Lynch & Co., Inc. ("ML & Co."), which is the limited partner. The Fund
has also entered into a Distribution Agreement and Distribution Plans
with Merrill Lynch Funds Distributor, Inc. ("MLFD" or "Distributor"), a
wholly-owned subsidiary of Merrill Lynch Group, Inc.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee based upon the average daily value
of the Fund's net assets at the following annual rates: 0.55% of the
Fund's average daily net assets not exceeding $500 million; 0.525% of
average daily net assets in excess of $500 million but not exceeding $1
billion; and 0.50% of average daily net assets in excess of $1 billion.
Pursuant to the distribution plans (the "Distribution Plans") adopted by
the Fund in accordance with Rule 12b-1 under the Investment Company Act
of 1940, the Fund pays the Distributor ongoing account maintenance and
distribution fees. The fees are accrued daily and paid monthly at annual
rates based upon the average daily net assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.25%
Class C 0.25% 0.35%
Class D 0.10% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce,
Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co., also provides
account maintenance and distribution services to the Fund. The ongoing
account maintenance fee compensates the Distributor and MLPF&S for
providing account maintenance services to Class B, Class C and Class D
shareholders. The ongoing distribution fee compensates the Distributor
and MLPF&S for providing shareholder and distribution-related services
to Class B and Class C shareholders.
For the six months ended January 31, 1997, MLFD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the Fund's
Class A and Class D Shares as follows:
MLFD MLPF&S
Class A $63 $825
Class D $11 $163
For the six months ended January 31, 1997, MLPF&S received contingent
deferred sales charges of $38,166 and $44 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 six months ended January 31, 1997 were $4,159,074 and $7,125,903,
respectively.
Net realized and unrealized gains as of January 31, 1997 were as
follows:
Realized Unrealized
Gains Gains
Long-term investments $89,302 $2,861,641
--------- ----------
Total $89,302 $2,861,641
========= ==========
As of January 31, 1997, net unrealized appreciation for Federal income
tax purposes aggregated $2,861,641, of which $2,870,192 related to
appreciated securities and $8,551 related to depreciated securities.
The aggregate cost of investments at January 31, 1997 for Federal income
tax purposes was $48,040,153.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest transactions
was $5,490,487 and $3,455,361 for the six months ended January 31, 1997
and for the year ended July 31, 1996, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the
Six Months Ended Dollar
January 31, 1997 Shares Amount
Shares sold 36,161 $376,450
Shares issued to shareholders
in reinvestment of dividends 7,111 73,824
--------- -----------
Total issued 43,272 450,274
Shares redeemed (100,220) (1,043,444)
--------- -----------
Net decrease (56,948) $(593,170)
========= S ===========
Class A Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 27,717 $288,349
Shares issued to shareholders
in reinvestment of dividends 16,771 174,647
--------- -----------
Total issued 44,488 462,996
Shares redeemed (144,883) (1,510,591)
--------- -----------
Net decrease (100,395) $(1,047,595)
========= ===========
Class B Shares for the
Six Months Ended Dollar
January 31, 1997 Shares Amount
Shares sold 173,898 $1,813,217
Shares issued to shareholders
in reinvestment of dividends 55,968 581,126
--------- ------------
Total issued 229,866 2,394,343
Automatic conversion
of shares (1,594) (16,601)
Shares redeemed (715,861) (7,425,544)
--------- ------------
Net decrease (487,589) $(5,047,802)
========= ============
Class B Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 418,920 $4,377,666
Shares issued to shareholders
in reinvestment of dividends 126,666 1,318,894
--------- ------------
Total issued 545,586 5,696,560
Automatic conversion of shares (6,671) (68,278)
Shares redeemed (848,447) (8,794,304)
--------- ------------
Net decrease (309,532) $(3,166,022)
========= ============
Class C Shares for the Six Months Dollar
Ended January 31, 1997 Shares Amount
Shares sold 19,894 $206,430
Shares issued to shareholders
in reinvestment of dividends 1,900 19,725
--------- ------------
Total issued 21,794 226,155
Shares redeemed (20,457) (212,926)
--------- ------------
Net increase 1,337 $13,229
========= ============
Class C Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 87,093 $913,147
Shares issued to shareholders
in reinvestment of dividends 2,971 30,908
--------- ------------
Total issued 90,064 944,055
Shares redeemed (7,794) (80,355)
--------- ------------
Net increase 82,270 $863,700
========= ============
Class D Shares for the Six Months Dollar
Ended January 31, 1997 Shares Amount
Shares sold 11,558 $120,510
Automatic conversion of shares 1,594 16,601
Shares issued to shareholders
in reinvestment of dividends 751 7,806
--------- ------------
Total issued 13,903 144,917
Shares redeemed (736) (7,661)
--------- ------------
Net increase 13,167 $137,256
========= ============
Class D Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 47,017 $496,152
Automatic conversion of shares 6,666 68,278
Shares issued to shareholders
in reinvestment of dividends 1,532 15,967
--------- ------------
Total issued 55,215 580,397
Shares redeemed (65,910) (685,841)
--------- ------------
Net decrease (10,695) $(105,444)
========= ============
5. Capital Loss Carryforward:
At July 31, 1996, the Fund had a net capital loss carryforward of
approximately $1,168,000, of which $881,000 expires in 2003 and $287,000
expires in 2004. This amount will be available to offset like amounts of
any future taxable gains.
