MERRILL LYNCH
MINNESOTA
MUNICIPAL
BOND FUND
[FUND LOGO]
STRATEGIC
Performance
Annual Report
July 31, 1997
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless accompanied or
preceded by the Fund's current prospectus. Past performance results
shown in this report should not be considered a representation of future
performance. Investment return and principal value of shares will
fluctuate so that shares, when redeemed, may be worth more or less than
their original cost. Statements and other information
herein are as dated and are subject to change.
Merrill Lynch Minnesota
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, NJ
08543-9011 #16187-- 7/97
[RECYCLE LOGO] Printed on post-consumer recycled paper
Merrill Lynch Minnesota Municipal Bond Fund July 31, 1997
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the six months ended July 31, 1997, a number of very favorable
factors combined to push both tax-exempt and taxable bond yields to
recent historic lows. A slowing domestic economy, a continued benign, if
not improving, inflationary environment, a declining Federal budget
deficit with resultant reduced Treasury borrowing needs, and a
successful Congressional budget accord all resulted in significant
declines in fixed-income yields. By the end of July, 30-year US Treasury
bond yields had declined approximately 50 basis points (0.50%) to 6.30%,
their lowest level in over a year. Similarly, as measured by the Bond
Buyer Revenue Bond Index, long-term municipal revenue bond yields fell
over 50 basis points to end the July 31, 1997 quarter at 5.49%,
their lowest level since early 1994.
The decline in tax-exempt yields in recent months has been even more
impressive given that the municipal market has lost much of the
technical support it had enjoyed for over a year. In previous quarters,
new tax-exempt bond issuance declined or remained stable. During the six
months ended July 31, 1997, approximately $100 billion in new long-term
municipal securities was underwritten, an increase of over 7.5% versus
the comparable period in 1996. As tax-exempt bond yields declined, many
municipal bond issuers have taken this opportunity to both issue new
debt and refinance older, higher-couponed debt with new, lower-yielding
issues. This refinancing has led to a surge in tax-exempt issuance in
recent months. Over the three months ended July 31, 1997, new long-term
tax-exempt bond issuance totaled approximately $55 billion, an increase
of over 15% versus the July 31, 1996 quarter.
The decline in municipal bond yields has also resulted in some reduction
in retail investor demand. In earlier episodes of rapidly declining
interest rates, individual investor demand initially fell until
investors became more acclimated to the current levels. Should interest
rates stabilize, we expect investor demand to return to earlier levels.
Also, this past June and July, municipal bond investors received over
$50 billion in assets from coupon income payments, bond maturities, and
the proceeds from early bond redemptions. Despite the continued allure
of the US equity market, it is likely that much of these assets will be
reallocated to the municipal bond market as investors adjust to the new
investment environment.
Looking forward, given the extent of the recent bond market rally, some
retrenchment or at least a period of consolidation is likely. However,
the positive backdrop of modest economic growth and low inflation
suggests that any such adjustment is not likely to be excessive. Despite
recent increases in new bond issuance, supply for all of 1997 is not
expected to be materially different than earlier estimates of
approximately $175 billion. It is likely that the recent increase in
issuance has largely borrowed from that originally scheduled for later
this year. Additionally, any significant increase in tax-exempt bond
yields will prevent any further bond refinancings, reducing future
supply. Unless the current positive economic fundamentals undergo
immediate and significant deterioration, any increase in municipal bond
yields is likely to be viewed as an opportunity to purchase more
attractively priced tax-exempt securities.
Fiscal Year in Review
During the past 12 months, the municipal bond market was characterized
by tremendous price volatility within a narrow trading range. We focused
on purchasing long-term insured bonds as yields approached 6.00% and
selling these securities as yields rallied to 5.50%. The Fund was fully
invested in long-term securities during most of the fiscal year to seek
to achieve an above industry average current yield. The Fund's cash
equivalent reserves fluctuated between 5% -- 10% of total assets, and a
large portion of assets committed to longer-term maturities currently
have coupons structured for income rather than price appreciation. This
strategy served the Fund well during this particularly volatile period
for the fixed-income markets in general, generating total return
performance comparable to the average of similar Minnesota municipal
bond funds as well as an above-average yield.
Portfolio Matters
During the six months ended July 31, 1997, we maintained a slightly
constructive posture on interest rates. We believed that the strong
economic growth that prevailed in the first quarter of 1997 would slow
considerably in the second quarter. Slow growth combined with continued
low inflation and a balanced budget accord provided a significant
decline in long-term interest rates.
The Minnesota municipal market continued to experience very little
activity during the past six months. This was a result of the small
amount of new issuance, just over $1.7 billion in municipal bonds,
coming to the Minnesota tax-exempt market. This represents a decline in
issuance of 22% as compared to the same period in 1996. During the past
three months, just over $900 million in bonds was issued in Minnesota, a
decline of 25% versus the comparable period a year ago. Additionally,
the majority of new issuance in Minnesota had been dominated by current
coupons and poor call protection features, which we believe would not
have enhanced the Fund's overall structure.
In Conclusion
We have adopted a slightly defensive posture for the second half of
1997. We believe that economic growth will reappear and that there will
be an increase in long-term interest rates. Our strategy will be to
favor higher-couponed issues that have greater potential for capital
appreciation over interest rate-sensitive securities. As new issuance in
the Minnesota tax-exempt market remains at low levels, we expect to
continue to remain fully invested in the coming months.
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,
/S/ARTHUR ZEIKEL
Arthur Zeikel
President
/S/VINCENT R. GIORDANO
Vincent R. Giordano
Senior Vice President
/S/ROBERT D. SNEEDEN
Robert D. Sneeden
Vice President and Portfolio Manager
September 3, 1997
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill
Lynch Select PricingSM System, which offers four pricing alternatives:
[bullet] Class A Shares incur a maximum initial sales charge (front-end
load) of 4% and bear no ongoing distribution or account maintenance
fees. Class A Shares are available only to eligible investors.
[bullet] Class B Shares are subject to a maximum contingent deferred
sales charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B Shares
are subject to a distribution fee of 0.25% and an account maintenance
fee of 0.25%. These shares automatically convert to Class D Shares after
approximately 10 years. (There is no initial sales charge for automatic
share conversions.)
[bullet] Class C Shares are subject to a distribution fee of 0.35% and
an account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within one
year of purchase.
[bullet] Class D Shares incur a maximum initial sales charge of 4% and an
account maintenance fee of 0.10% (but no distribution fee).
None of the past results shown should be considered a representation of
future performance. Figures shown in the "Average Annual Total Return"
tables as well as the total returns and cumulative total returns in the
"Performance Summary" tables assume reinvestment of all dividends and
capital gains distributions at net asset value on the payable date.
Investment return and principal value of shares will fluctuate so that
shares, when redeemed, may be worth more or less than their original
cost. Dividends paid to each class of shares will vary because of the
different levels of account maintenance, distribution and transfer
agency fees applicable to each class, which are deducted from the income
available to be paid to shareholders.
<TABLE>
<CAPTION>
Recent Performance Results
12 Month 3 Month
7/31/97 4/30/97 7/31/96 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $10.72 $10.38 $10.28 +4.28% +3.28%
Class B Shares* 10.72 10.38 10.28 +4.28 +3.28
Class C Shares* 10.72 10.38 10.28 +4.28 +3.28
Class D Shares* 10.73 10.38 10.28 +4.38 +3.37
Class A Shares -- Total Return* +9.71(1) +4.60(2)
Class B Shares -- Total Return* +9.15(3) +4.47(4)
Class C Shares -- Total Return* +9.04(5) +4.44(6)
Class D Shares -- Total Return* +9.70(7) +4.68(8)
Class A Shares -- Standardized 30-day Yield 4.45%
Class B Shares -- Standardized 30-day Yield 4.13%
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 $0.528 per share ordinary income dividends.
(2) Percent change includes reinvestment of $0.134 per share ordinary income dividends.
(3) Percent change includes reinvestment of $0.475 per share ordinary income dividends.
(4) Percent change includes reinvestment of $0.120 per share ordinary income dividends.
(5) Percent change includes reinvestment of $0.465 per share ordinary income dividends.
(6) Percent change includes reinvestment of $0.118 per share ordinary income dividends.
(7) Percent change includes reinvestment of $0.518 per share ordinary income dividends.
(8) Percent change includes reinvestment of $0.131 per share ordinary income dividends.
</TABLE>
[GRAPHIC WORM CHART OMITTED: Total Return Based on a $10,000 Investment]
Total Return Based on a $10,000 Investment -- Class A Shares and Class B
Shares
A line graph depicting the growth of an investment in the Fund's Class A
Shares and Class B Shares compared to growth of an investment in the
Lehman Brothers Municipal Bond Index. Beginning and ending values are:
3/27/92** 7/97
ML Minnesota Municipal Bond Fund+--
Class A Shares* $9,600 $13,928
ML Minnesota Municipal Bond Fund+--
Class B Shares* $10,000 $14,119
Lehman Brothers Municipal Bond
Index++ $10,000 $15,026
Total Return Based on a $10,000 Investment -- Class C Shares and Class D
Shares
A line graph depicting the growth of an investment in the Fund's Class C
and Class D Shares compared to growth of an investment in the Lehman
Brothers Municipal Bond Index. Beginning and ending values are:
10/21/94** 7/97
ML Minnesota Municipal Bond Fund+--
Class C Shares* $10,000 $12,187
ML Minnesota Municipal Bond Fund+--
Class D Shares* $9,600 $11,881
Lehman Brothers Municipal Bond
Index++ $10,000 $13,054
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
** Commencement of Operations.
+ ML 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
and obligations of other qualify issuers.
++ This unmanaged Index consists of long-term revenue bonds, prerefunded
bonds, general obligation bonds and insured bonds.
Past performance in not predictive of future performance.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/97 +7.75% +3.44%
Five Years Ended 6/30/97 +6.40 +5.54
Inception (3/27/92)
through 6/30/97 +6.82 +5.99
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/97 +7.21% +3.21%
Five Years Ended 6/30/97 +5.86 +5.86
Inception (3/27/92) through 6/30/97 +6.28 +6.28
* Maximum contingent deferred sales charge is 4% and is reduced
to 0% after 4 years.
** Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 6/30/97 +7.10% +6.10%
Inception (10/21/94)
through 6/30/97 +6.65 +6.65
* Maximum contingent deferred sales charge is 1% and is reduced
to 0% after 1 year.
** Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 6/30/97 +7.64% +3.34%
Inception (10/21/94) through 6/30/97 +7.25 +5.63
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
<TABLE>
<CAPTION>
Performance Summary -- Class A Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
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 -- 7/31/97 10.45 10.72 -- 0.295 + 5.66
Total $0.081 Total $3.066
Cumulative total return as of 7/31/97: +45.07%**
* Figures may include short-term capital gains distributions.
** Figures do not include sales charge; results would be lower if sales charge was included.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class B Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
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 -- 7/31/97 10.45 10.72 -- 0.266 + 5.35
Total $0.081 Total $2.784
Cumulative total return as of 7/31/97: +41.19%**
* Figures may include short-term capital gains distributions.
** Figures do not reflect deduction of any sales charge; results would be lower if sales charge was deducted.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class C Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94 -- 12/31/94 $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 -- 7/31/97 10.45 10.72 -- 0.260 + 5.29
Total $1.303
Cumulative total return as of 7/31/97: +21.87%**
* Figures may include short-term capital gains distributions.
** Figures do not reflect deduction of any sales charge; results would be lower if sales charge was deducted.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class D Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94 -- 12/31/94 $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 -- 7/31/97 10.46 10.73 -- 0.289 + 5.59
Total $1.452
Cumulative total return as of 7/31/97: +23.76%**
* Figures may include short-term capital gains distributions.
** Figures do not include sales charge; results would be lower if sales charge was included.
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <C> <C> <C> <C>
Minnesota -- 97.2%
NR* A3 $1,475 Alexandria, Minnesota, Independent School District No. 206, UT, Series A, 6.30%
due 2/01/2010 $1,608
A1+ Aa3 2,225 Anoka County, Minnesota, Solid Waste Disposal Revenue Bonds (National Rural Utilities),
AMT, Series A, 6.95% due 12/01/2008 2,407
AAA Aaa 1,375 Bass Brook, Minnesota, PCR, Refunding (Minnesota Power and Light Company Project),
6% due 7/01/2022 (b) 1,455
A1+ NR* 200 Beltrami County, Minnesota, Environmental Control Revenue Bonds
(Northwood Panelboard Co. Project), VRDN, AMT, 3.65% due 7/01/2025 (a) 200
NR* Baa1 1,000 Clay County, Minnesota, Housing and Redevelopment Authority, Lease Revenue Bonds,
6.50% due 2/01/2014 1,044
A- NR* 1,000 Cloquet, Minnesota, PCR, Refunding (Potlach Corporation Projects), 5.90% due 10/01/2026 1,033
AAA NR* 3,530 Coon Rapids, Minnesota, M/F Housing Revenue Refunding Bonds (Browns Meadow),
AMT, 6.85% due 8/01/2033 (h) 3,684
AAA Aaa 1,215 Kenyon Wanamingo, Minnesota, Independent School District No. 2172, UT, 5.90% due
2/01/2015 (b) 1,282
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 2,210
AA- A1 100 Minneapolis, Minnesota, Community Development Agency, PCR (Nothern System Power Co.
Project), VRDN, 3.75% due 3/01/2011 (a) 100
AAA Aaa 1,500 Minneapolis, Minnesota, Sales Tax Refunding Bonds, GO, UT, 6.25% due 4/01/2012 1,634
Minnesota Public Facilities Authority, Water, PCR:
AAA Aaa 1,300 Series A, 6.50% due 3/01/2014 1,432
AAA Aaa 2,250 Series B, 5% due 3/01/2017 2,217
AAA Aaa 1,500 Minnesota State, GO, UT, 6% due 10/01/2014 1,625
Minnesota State, HFA, S/F Mortgage:
AA+ Aa2 1,750 AMT, Series E, 6.85% due 1/01/2024 1,846
AA+ Aa2 1,420 AMT, Series L, 6.70% due 7/01/2020 1,502
AA+ Aa2 800 Series A, 6.95% due 7/01/2016 850
AA+ Aa2 1,580 Series D-1, 6.50% due 1/01/2017 1,661
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) 1,059
Minnesota State Higher Educational Facilities Authority, Revenue Refunding Bonds
(Macalester College), Series 3-J:
AA- Aa3 550 6.30% due 3/01/2014 593
AA- Aa3 2,250 6.40% due 3/01/2022 2,425
NR* A 750 Northfield, Minnesota, College Facilities Revenue Refunding Bonds (Saint Olaf College
Project), 6.40% due 10/01/2021 812
AA+ NR* 3,450 Rochester, Minnesota, Health Care Facilities Revenue Bonds (Mayo Foundation), IRS,
Series H, 7.865% due 11/15/2015 (i) 3,907
AAA Aaa 1,650 Saint Cloud, Minnesota, Hospital Facilities Revenue Refunding Bonds (Saint Cloud
Hospital), Series B, 5% due 7/01/2015 (f) 1,617
AAA Aaa 1,000 Saint Francis, Minnesota, Independent School District No. 015, UT, Series A, 6.35%
due 2/01/2013 (j) 1,130
Saint Paul, Minnesota, Housing and Redevelopment Authority Revenue Bonds:
A- NR* 1,750 Parking, Series A, 6.55% due 8/01/2000 (g) 1,901
AAA NR* 860 S/F Mortgage, Refunding, Series C, 6.95% due 12/01/2031 (e) 904
NR* NR* 1,500 (Science Museum of Minnesota), VRDN, AMT, Series A, 3.50% due 5/01/2027 (a) 1,500
Sartell, Minnesota, Refunding (Champion International):
BBB Baa1 990 IDR, 6.95% due 7/01/2012 1,075
BBB Baa1 665 PCR, 6.95% due 10/01/2012 727
AAA Aaa 1,000 Stillwater, Minnesota, Independent School District No. 834, 5.75% due 2/01/2015 (b) 1,044
AAA Aaa 820 Western Minnesota Municipal Power Agency, Power Supply Revenue Bonds, Series A,
6.375% due 1/01/2016 (d) 917
Total Investments (Cost -- $44,003) -- 97.2% 47,401
Other Assets Less Liabilities -- 2.8% 1,388
--------
Net Assets -- 100.0% $48,789
========
(a) The interest rate is subject to change periodically based upon prevailing market rates. The interest rate
shown is the rate in effect at July 31, 1997.
(b) MBIA Insured.
(c) Connie Lee Insured.
(d) Escrowed to Maturity.
(e) FNMA Collateralized.
(f) AMBAC 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 July 31, 1997.
(j) FSA Insured.
* Not Rated.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
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)
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 July 31, 1997
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $44,002,915) (Note 1a) $47,401,193
Cash 10,519
Receivables:
Securities sold $2,036,090
Interest 781,874
Beneficial interest sold 61,138 2,879,102
-------------
Prepaid registration fees and other assets (Note 1e) 12,702
-------------
Total assets 50,303,516
-------------
Liabilities: Payables:
Securities purchased 1,044,829
Beneficial interest redeemed 306,720
Dividends to shareholders (Note 1f) 61,692
Investment adviser (Note 2) 22,794
Distributor (Note 2) 18,181 1,454,216
-------------
Accrued expenses and other liabilities 60,769
-------------
Total liabilities 1,514,985
-------------
Net Assets: Net assets $48,788,531
=============
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited number of
Consist of: shares authorized $50,281
Class B Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 385,012
Class C Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 11,201
Class D Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 8,609
Paid-in capital in excess of par 46,078,157
Accumulated realized capital losses on investments -- net (Note 5) (1,143,007)
Unrealized appreciation on investments -- net 3,398,278
-------------
Net assets $48,788,531
=============
Net Asset Value: Class A -- Based on net assets of $5,389,614 and 502,811 shares of
beneficial interest outstanding $10.72
=============
Class B -- Based on net assets of $41,274,440 and 3,850,119 shares of
beneficial interest outstanding $10.72
=============
Class C -- Based on net assets of $1,200,957 and 112,011 shares of
beneficial interest outstanding $10.72
=============
Class D -- Based on net assets of $923,520 and 86,089 shares of
beneficial interest outstanding $10.73
=============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Year Ended
July 31, 1997
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned $3,117,081
(Note 1d):
Expenses: Investment advisory fees (Note 2) $285,229
Account maintenance and distribution fees -- Class B (Note 2) 221,542
Professional fees 59,000
Accounting services (Note 2) 43,046
Transfer agent fees -- Class B (Note 2) 29,360
Registration fees (Note 1e) 20,890
Account maintenance and distribution fees -- Class C (Note 2) 7,317
Amortization of organization expenses (Note 1e) 5,221
Pricing fees 4,677
Custodian fees 3,409
Printing and shareholder reports 3,337
Transfer agent fees -- Class A (Note 2) 3,035
Trustees' fees and expenses 2,758
Account maintenance fees -- Class D (Note 2) 818
Transfer agent fees -- Class C (Note 2) 817
Transfer agent fees -- Class D (Note 2) 447
Other 21,495
------------
Total expenses 712,398
------------
Investment income -- net 2,404,683
------------
Realized & Realized gain on investments -- net 896,743
Unrealized Gain on Change in unrealized appreciation on investments -- net 1,244,511
Investments -- Net ------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $4,545,937
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
For the Year Ended July 31,
Increase (Decrease) in Net Assets: 1997 1996
<S> <C> <C> <C>
Operations: Investment income -- net $2,404,683 $2,816,420
Realized gain (loss) on investments -- net 896,743 (284,411)
Change in unrealized appreciation on investments -- net 1,244,511 93,704
------------- -------------
Net increase in net assets resulting from operations 4,545,937 2,625,713
------------- -------------
Dividends to Investment income -- net:
Shareholders Class A (280,685) (331,165)
(Note 1f): Class B (2,028,556) (2,408,920)
Class C (54,617) (40,224)
Class D (40,825) (36,111)
------------- -------------
Net decrease in net assets resulting from dividends to shareholders (2,404,683) (2,816,420)
------------- -------------
Beneficial Interest Net decrease in net assets derived from beneficial interest transactions (9,836,070) (3,455,361)
Transactions ------------- -------------
(Note 4):
Net Assets: Total decrease in net assets (7,694,816) (3,646,068)
Beginning of year 56,483,347 60,129,415
------------- -------------
End of year $48,788,531 $56,483,347
============= =============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
The following per share data and ratios have been derived
from information provided in the financial statements. Class A
For the Year Ended July 31,
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $10.28 $10.31 $10.33 $10.83 $10.58
Operating ------ ------ ------ ------ ------
Performance: Investment income -- net .53 .54 .55 .55 .58
Realized and unrealized gain (loss) on
investments -- net .44 (.03) (.02) (.35) .30
------ ------ ------ ------ ------
Total from investment operations .97 .51 .53 .20 .88
------ ------ ------ ------ ------
Less dividends and distributions:
Investment income -- net (.53) (.54) (.55) (.55) (.58)
Realized gain on investments -- net -- -- -- -- (.05)
In excess of realized gain on
investments -- net -- -- -- (.15) --
------ ------ ------ ------ ------
Total dividends and distributions (.53) (.54) (.55) (.70) (.63)
------ ------ ------ ------ ------
Net asset value, end of year $10.72 $10.28 $10.31 $10.33 $10.83
====== ====== ====== ====== ======
Total Investment Based on net asset value per share 9.71% 4.98% 5.44% 1.87% 8.71%
Return:* ====== ====== ====== ====== ======
Ratios to Average Expenses, net of reimbursement .92% .84% .75% .69% .45%
Net Assets: ====== ====== ====== ====== ======
Expenses .92% .95% .92% 1.03% 1.04%
====== ====== ====== ====== ======
Investment income -- net 5.09% 5.16% 5.51% 5.18% 5.56%
====== ====== ====== ====== ======
Supplemental Net assets, end of year (in thousands) $5,390 $5,884 $6,936 $8,810 $12,859
Data: ====== ====== ====== ====== ======
Portfolio turnover 28.42% 53.99% 22.36% 58.67% 23.83%
====== ====== ====== ====== ======
* Total investment returns exclude the effects of sales loads.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights (continued)
The following per share data and ratios have been derived
from information provided in the financial statements. Class B
For the Year Ended July 31,
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $10.28 $10.31 $10.33 $10.83 $10.58
------ ------ ------ ------ ------
Operating Investment income -- net .48 .48 .50 .50 .53
Performance: Realized and unrealized gain (loss) on
investments -- net .44 (.03) (.02) (.35) .30
------ ------ ------ ------ ------
Total from investment operations .92 .45 .48 .15 .83
------ ------ ------ ------ ------
Less dividends and distributions:
Investment income -- net (.48) (.48) (.50) (.50) (.53)
Realized gain on investments -- net -- -- -- -- (.05)
In excess of realized gain on
investments -- net -- -- -- (.15) --
------ ------ ------ ------ ------
Total dividends and distributions (.48) (.48) (.50) (.65) (.58)
------ ------ ------ ------ ------
Net asset value, end of year $10.72 $10.28 $10.31 $10.33 $10.83
====== ====== ====== ====== ======
Total Investment Based on net asset value per share 9.15% 4.44% 4.91% 1.35% 8.16%
Return:* ====== ====== ====== ====== ======
Ratios to Average Expenses, net of reimbursement 1.43% 1.35% 1.27% 1.21% .96%
Net Assets: ====== ====== ====== ====== ======
Expenses 1.43% 1.46% 1.44% 1.54% 1.55%
====== ====== ====== ====== ======
Investment income -- net 4.58% 4.64% 5.00% 4.70% 5.03%
====== ====== ====== ====== ======
Supplemental Net assets, end of year (in thousands). $41,274 $48,696 $52,023 $56,960 $54,921
Data: ====== ====== ====== ====== ======
Portfolio turnover 28.42% 53.99% 22.36% 58.67% 23.83%
====== ====== ====== ====== ======
* Total investment returns exclude the effects of sales loads.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights (concluded)
Class C Class D
For the For the
For the Period For the Period
The following per share data and ratios have been derived Year Oct. 21, Year Oct. 21,
from information provided in the financial statements. Ended 1994+ to Ended 1994+ to
July 31, July 31, July 31, July 31,
1997 1996 1995 1997 1996 1995
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.28 $10.31 $9.99 $10.28 $10.31 $9.99
Operating ------ ------ ------ ------ ------ ------
Performance: Investment income -- net .47 .47 .37 .52 .53 .41
Realized and unrealized gain (loss) on
investments -- net .44 (.03) .32 .45 (.03) .32
------ ------ ------ ------ ------ ------
Total from investment operations .91 .44 .69 .97 .50 .73
------ ------ ------ ------ ------ ------
Less dividends from investment
income -- net (.47) (.47) (.37) (.52) (.53) (.41)
------ ------ ------ ------ ------ ------
Net asset value, end of period $10.72 $10.28 $10.31 $10.73 $10.28 $10.31
====== ====== ====== ====== ====== ======
Total Investment Based on net asset value per share 9.04% 4.33% 7.13%++++ 9.70% 4.88% 7.57%++++
Return:** ====== ====== ====== ====== ====== ======
Ratios to Average Expenses, net of reimbursement 1.53% 1.48% 1.46%* 1.02% .94% .92%*
Net Assets: ====== ====== ====== ====== ====== ======
Expenses 1.53% 1.57% 1.61%* 1.02% 1.05% 1.07%*
====== ====== ====== ====== ====== ======
Investment income -- net 4.48% 4.50% 4.70%* 4.99% 5.05% 5.27%*
====== ====== ====== ====== ====== ======
Supplemental Net assets, end of period (in thousands) $1,201 $1,219 $375 $924 $684 $796
Data: ====== ====== ====== ====== ====== ======
Portfolio turnover 28.42% 53.99% 22.36% 28.42% 53.99% 22.36%
====== ====== ====== ====== ====== ======
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of Operations.
++++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Minnesota Municipal Bond Fund July 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.
The Fund offers four classes of shares under the Merrill Lynch Select
Pricing SM System. Shares of Class A and Class D are sold with a front-
end sales charge. Shares of Class B and Class C may be subject to a
contingent deferred sales charge. All classes of shares have identical
voting, dividend, liquidation and other rights and the same terms and
conditions, except that Class B, Class C and Class D Shares bear certain
expenses related to the account maintenance of such shares, and Class B
and Class C Shares also bear certain expenses related to the
distribution of such shares. Each class has exclusive voting rights with
respect to matters relating to its account maintenance and distribution
expenditures. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments -- Municipal bonds and other portfolio
securities in which the Fund invests are traded primarily in the over-
the-counter municipal bond and money markets and are valued at the last
available bid price in the over-the-counter market or on the basis of
yield equivalents as obtained from one or more dealers that make markets
in the securities. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their settlement prices as
of the close of such exchanges. Short-term investments with remaining
maturities of sixty days or less are valued at amortized cost, which
approximates market value. Securities and assets for which market
quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of
Trustees of the Trust, including valuations furnished by a pricing
service retained by the Trust, which may utilize a matrix system for
valuations. The procedures of the pricing service and its valuations are
reviewed by the officers of the Trust under the general supervision of
the Trustees.
(b) Derivative financial instruments -- The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the counterparty
does not perform under the contract.
[bullet] Financial futures contracts -- The Fund may purchase or sell
interest rate futures contracts and options on such futures contracts
for the purpose of hedging the market risk on existing securities or the
intended purchase of securities. Futures contracts are contracts for
delayed delivery of securities at a specific future date and at a
specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required by
the exchange on which the transaction is effected. Pursuant to the
contract, the Fund agrees to receive from or pay to the broker an amount
of cash equal to the daily fluctuation in value of the contract. Such
receipts or payments are known as variation margin and are recorded by
the Fund as unrealized gains or losses. When the contract is closed, the
Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the
time it was closed.
(c) Income taxes -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its taxable
income to its shareholders. Therefore, no Federal income tax provision
is required.
(d) Security transactions and investment income -- Security transactions
are recorded on the dates the transactions are entered into (the trade
dates). Interest income is recognized on the accrual basis. Discounts
and market premiums are amortized into interest income. Realized gains
and losses on security transactions are determined on the identified
cost basis.
(e) Deferred organization expenses and prepaid registration fees --
Deferred organization expenses are charged to expense on a straight-line
basis over a five-year period. Prepaid registration fees are charged to
expense as the related shares are issued.
(f) Dividends and distributions -- Dividends from net investment income
are declared daily and paid monthly. Distributions of capital gains are
recorded on the ex-dividend dates.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is Princeton
Services, Inc. ("PSI"), an indirect wholly-owned subsidiary of Merrill
Lynch & Co., Inc. ("ML & Co."), which is the limited partner. The Fund
has also entered into a Distribution Agreement and Distribution Plans
with Merill Lynch Funds Distributor, Inc. ("MLFD" or "Distributor"), a
wholly-owned subsidiary of Merrill Lynch Group, Inc.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee based upon the average daily value
of the Fund's net assets at the following annual rates: 0.55% of the
Fund's average daily net assets not exceeding $500 million; 0.525% of
average daily net assets in excess of $500 million but not exceeding $1
billion; and 0.50% of average daily net assets in excess of $1 billion.
Pursuant to the distribution plans (the "Distribution Plans") adopted by
the Fund in accordance with Rule 12b-1 under the Investment Company Act
of 1940, the Fund pays the Distributor ongoing account maintenance and
distribution fees. The fees are accrued daily and paid monthly at annual
rates based upon the average daily net assets of the shares as follows:
Account 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 year ended July 31, 1997, MLFD earned underwriting discounts and
MLPF&S earned dealer concessions on sales of the Fund's Class A and
Class D Shares as follows:
MLFD MLPF&S
Class A $174 $1,925
Class D $13 $192
For the year ended July 31, 1997, MLPF&S received contingent deferred
sales charges of $64,434 and $124 relating to transactions in Class B
and Class C Shares, respectively.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-owned
subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of FAM, PSI, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for
the year ended July 31, 1997 were $14,044,842 and $21,865,008,
respectively.
Net realized and unrealized gains as of July 31, 1997 were as follows:
Realized Unrealized
Gains Gains
Long-term investments $896,743 $3,398,278
--------- -----------
Total $896,743 $3,398,278
========= ===========
As of July 31, 1997, net unrealized appreciation for Federal income tax
purposes aggregated $3,398,278, all of which related to appreciated
securities. The aggregate cost of investments at July 31, 1997 for
Federal income tax purposes was $44,002,915.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest transactions
was $9,836,070 and $3,455,361 for the years ended July 31, 1997 and July
31, 1996, respectively.
Class A Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 98,009 $1,023,047
Shares issued to shareholders
in reinvestment of dividends 14,256 148,635
------------ ------------
Total issued 112,265 1,171,682
Shares redeemed (182,062) (1,903,527)
------------ ------------
Net decrease (69,797) $(731,845)
============ ============
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 Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 305,442 $3,191,085
Shares issued to shareholders
in reinvestment of dividends 102,880 1,072,270
------------ ------------
Total issued 408,322 4,263,355
Automatic conversion of shares (3,064) (31,885)
Shares redeemed (1,293,215) (13,469,917)
------------ ------------
Net decrease (887,957) $(9,238,447)
============ ============
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 Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 32,853 $341,854
Shares issued to shareholders
in reinvestment of dividends 3,607 37,599
------------ ------------
Total issued 36,460 379,453
Shares redeemed (43,065) (449,673)
------------ ------------
Net decrease (6,605) $(70,220)
============ ============
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 Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 17,418 $181,470
Automatic conversion of shares 3,064 31,885
Shares issued to shareholders
in reinvestment of dividends 1,541 16,086
------------ ------------
Total issued 22,023 229,441
Shares redeemed (2,396) (24,999)
------------ ------------
Net increase 19,627 $204,442
============ ============
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, 1997, the Fund had a net capital loss
carryforward of approximately $656,000, of which $369,000 expires in
2003 and $287,000 expires in 2004. This amount will be available to
offset like amounts of any future taxable gains.
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
Merrill Lynch 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, 1997, the related statements of operations for the year
then ended and changes in net assets for each of the years in the two-
year period then ended, and the financial highlights for each of the
years in the five-year period then ended. These financial statements and
the financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
the financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of securities owned at July 31, 1997 by correspondence with
the custodian and broker. 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, 1997, the results of its
operations, the changes in its net assets, and the financial highlights
for the respective stated periods in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
September 5, 1997
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid monthly by Merrill
Lynch Minnesota Municipal Bond Fund during its taxable year ended July
31, 1997 qualify as tax-exempt interest dividends for Federal income tax
purposes.
Additionally, there were no capital gains distributions made by the Fund
during the year.
Please retain this information for your records.
OFFICERS AND TRUSTEES
Arthur Zeikel, President and Trustee
James H. Bodurtha, Trustee
Herbert I. London, Trustee
Robert R. Martin, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Terry K. Glenn, Executive Vice President
Vincent R. Giordano, Senior Vice President
Donald C. Burke, Vice President
Kenneth A. Jacob, Vice President
Robert D. Sneeden, Vice President
Gerald M. Richard, Treasurer
Robert E. Putney III, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
