MERRILL LYNCH
MINNESOTA
MUNICIPAL
BOND FUND
[FUND LOGO]
STRATEGIC
Performance
Semi-Annual Report
January 31, 1998
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 -- 1/98
[RECYCLE LOGO]
Printed on post-consumer recycled paper
Merrill Lynch Minnesota Municipal Bond Fund January 31, 1998
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the six months ended January 31, 1998, long-term bond yields
declined to recent historic lows. Prior to late October, the ongoing
positive combination of moderate economic growth and low inflation
had allowed interest rates to gradually move lower. During the last
three months, however, the decline in interest rates was driven more
by the continued turmoil in Asian equity markets than by fundamental
concerns. A significant "flight to quality" has benefited the US
Treasury bond market, particularly longer-maturity US Treasury bonds,
as foreign investors have sought safe haven in the relative stability
of US financial markets. Over the six months ended January 31, 1998,
US Treasury bond yields declined approximately 50 basis points
(0.50%) to 5.81%.
Without the ability to benefit from the tax advantage inherent in
municipal bonds, foreign investors have not participated in the tax-
exempt market. Consequently, municipal bond yields have not declined
dramatically as have taxable US Treasury securities. Long-term
municipal revenue bond yields, as measured by the Bond Buyer Revenue
Index, declined only 15 basis points to end the six-month period
ended January 31, 1998 at 5.33%. Nevertheless, tax-exempt bond yields
have not reached these levels since the mid-1970s.
The increase in new municipal bond issuance over the past six months
has also prevented the tax-exempt bond market from more closely
mirroring the yield declines exhibited by its taxable counterpart.
During the last six months, over $120 billion in new long-term
municipal bonds were underwritten, an increase of over 30% compared
to the same six-month period one year ago. As interest rates have
continued to decline in recent months, new tax-exempt bond issuance
has remained strong. Over $60 million in new long-term municipal
securities were issued during the last three months, an increase of
over 20% compared to the same three-month period ended January 31,
1997. During the past month, over $16 billion in new long-term
municipal securities were underwritten, representing an increase of
over 40% compared to the January 1997 level.
In our opinion, the recent correction in world equity markets has
enhanced the near-term prospects for continued low, if not declining,
interest rates in the United States. It is likely that the recent
correction will result in slower US domestic growth in the coming
months. This decline should be generated in part by reduced US export
growth. Additionally, some decline in consumer spending can also be
expected because of reduced consumer confidence. Perhaps more
importantly, it is likely that, barring a dramatic and unexpected
resurgence in domestic growth, the Federal Reserve Board will be
unwilling to raise interest rates until the full impact of the equity
market's corrections can be established.
All of these factors suggest that over the near term, interest rates,
including tax-exempt bond yields, are unlikely to rise by any
appreciable amount. It is probable that municipal bond yields will
remain under some relative pressure because of continued strong new-
issue supply. However, the recent pace of municipal bond issuance is
likely to be unsustainable. Continued increases in bond issuance will
require lower and lower tax-exempt bond yields to generate the
economic savings necessary for additional municipal bond
refinancings. Preliminary estimates of 1998 total municipal bond
issuance are presently in the $195 billion -- $220 billion range.
These estimates suggest that recent supply pressures are likely to
abate somewhat next year, or at least exert only minimal technical
pressure during 1998. Additionally, municipal bond investors received
approximately $23 billion in January coupon payments, bond maturities
and proceeds from early redemptions, which should serve to intensify
investors demand in the near future. With tax-exempt bond yields at
already attractive yield ratios relative to US Treasury bonds
(approximately 90% at the end of December 1997), any further pressure
on the municipal market may well represent an attractive investment
opportunity.
Portfolio Strategy
We adopted a slightly defensive investment strategy going into the
second half of 1997. We believed that economic growth would resurge
and that the Federal Reserve Board would have to raise interest rates
in order to keep inflation under control. However, in late October
1997, the Asian equity market turmoil created an increased demand for
securities in the US Treasury bond market. In response to the Asian
financial crisis and the continued low domestic inflationary
environment, we shifted Merrill Lynch Minnesota Municipal Bond Fund
toward a more aggressive strategy by early November 1997.
During the six months ended January 31, 1998, new issuance was just
over $1.7 billion in the Minnesota tax-exempt bond market. This
represented an increase of approximately 5% compared to the same
period a year ago. Additionally, the majority of new issuance in
Minnesota was dominated by current coupons and lesser call
protection, which would not enhance the Fund's overall structure.
Looking ahead, we expect to maintain the Fund's fully invested
position. We believe that interest rates will remain in a narrow
trading range. We plan to use periods of higher interest rates to
structure the portfolio more aggressively. However, an anticipated
lack of new issuance in Minnesota may curtail our ability to execute
this strategy.
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 to come.
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
March 5, 1998
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
1/31/98 10/31/97 1/31/97 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $10.84 $10.69 $10.43 +3.93% +1.40%
Class B Shares* 10.84 10.70 10.43 +3.93 +1.31
Class C Shares* 10.84 10.70 10.43 +3.93 +1.31
Class D Shares* 10.85 10.70 10.44 +3.93 +1.40
Class A Shares -- Total Return* +9.33(1) +2.71(2)
Class B Shares -- Total Return* +8.78(3) +2.48(4)
Class C Shares -- Total Return* +8.67(5) +2.46(6)
Class D Shares -- Total Return* +9.22(7) +2.68(8)
Class A Shares -- Standardized 30-day Yield 4.08%
Class B Shares -- Standardized 30-day Yield 3.74%
Class C Shares -- Standardized 30-day Yield 3.64%
Class D Shares -- Standardized 30-day Yield 3.98%
* 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 $0.538 per share ordinary income dividends.
(2) Percent change includes reinvestment of $0.138 per share ordinary income dividends.
(3) Percent change includes reinvestment of $0.484 per share ordinary income dividends.
(4) Percent change includes reinvestment of $0.124 per share ordinary income dividends.
(5) Percent change includes reinvestment of $0.474 per share ordinary income dividends.
(6) Percent change includes reinvestment of $0.122 per share ordinary income dividends.
(7) Percent change includes reinvestment of $0.528 per share ordinary income dividends.
(8) Percent change includes reinvestment of $0.135 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
1997 10.45 10.78 -- 0.539 + 8.55
1/1/98 -- 1/31/98 10.78 10.84 -- 0.037 + 0.99
Total $0.081 Total $3.347
Cumulative total return as of 1/31/98: +50.51%**
* 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
1997 10.45 10.78 -- 0.485 + 8.00
1/1/98 -- 1/31/98 10.78 10.84 -- 0.033 + 0.94
Total $0.081 Total $3.036
Cumulative total return as of 1/31/98: +46.10%**
* 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
1997 10.45 10.79 -- 0.474 + 7.99
1/1/98 -- 1/31/98 10.79 10.84 -- 0.033 + 0.84
Total $1.550
Cumulative total return as of 1/31/98: +26.05%**
* 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
1997 10.46 10.79 -- 0.529 + 8.43
1/1/98 -- 1/31/98 10.79 10.85 -- 0.037 + 0.98
Total $1.729
Cumulative total return as of 1/31/98: +28.33%**
* Figures may include short-term capital gains distributions.
** Figures do not include sales charge; results would be lower if sales charge was included.
</TABLE>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/97 +8.55% +4.21%
Five Years Ended 12/31/97 +6.54 +5.68
Inception (3/27/92)
through 12/31/97 +7.17 +6.41
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/97 +8.00% +4.00%
Five Years Ended 12/31/97 +6.01 +6.01
Inception (3/27/92)
through 12/31/97 +6.62 +6.62
* 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 12/31/97 +7.99% +6.99%
Inception (10/21/94)
through 12/31/97 +7.23 +7.23
* 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 12/31/97 +8.43% +4.10%
Inception (10/21/94)
through 12/31/97 +7.79 +6.42
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
<TABLE>
<CAPTION>
Merrill Lynch Minnesota Municipal Bond Fund January 31, 1998
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <C> <C> <C> <C>
Minnesota -- 98.6%
NR* A3 $1,475 Alexandria, Minnesota, Independent School District No. 206, UT,
Series A, 6.30% due 2/01/2010 $1,605
A1+ Aa3 2,225 Anoka County, Minnesota, Solid Waste Disposal Revenue Bonds
(National Rural Utilities), AMT, Series A, 6.95% due 12/01/2008 2,392
AAA Aaa 1,375 Bass Brook, Minnesota, PCR, Refunding (Minnesota Power and
Light Company Project), 6% due 7/01/2022 (b) 1,481
A1+ NR* 100 Beltrami County, Minnesota, Environmental Control Revenue
Refunding Bonds (Northwood Panelboard Co. Project), VRDN,
3.65% due 12/01/2021 (a) 100
NR* A3 1,000 Clay County, Minnesota, Housing and Redevelopment Authority, Lease
Revenue Bonds, 6.50% due 2/01/2014 1,075
A- NR* 1,000 Cloquet, Minnesota, PCR, Refunding (Potlatch Corporation Projects),
5.90% due 10/01/2026 1,060
AAA NR* 3,530 Coon Rapids, Minnesota, M/F Housing Revenue Refunding Bonds
(Browns Meadow), AMT, 6.85% due 8/01/2033 (h) 3,735
AAA Aaa 1,215 Kenyon Wanamingo, Minnesota, Independent School District No. 2172,
UT, 5.90% due 2/01/2015 (b) 1,309
Lakeville, Minnesota, Independent School District No. 194, UT,
Series B (f):
NR* Aaa 1,000 5.476%** due 2/01/2018 353
NR* Aaa 2,770 5.50%** due 2/01/2020 872
Minneapolis and Saint Paul, Minnesota, Housing and Redevelopment
Authority, Health Care System Revenue Bonds:
AAA Aaa 1,250 (Children's Healthcare), Series A, 5.70% due 8/15/2016 (f) 1,320
A- A 2,000 (Group Health Plan Incorporated Project), 6.90% due 10/15/2022 2,212
AA A1 200 Minneapolis, Minnesota, Community Development Agency, PCR
(Northern States Power Co. Project), VRDN, 3.60% due 3/01/2011 (a) 200
AA Aa2 2,000 Minneapolis, Minnesota, Revenue Bonds (University Gateway Project),
Series A, 5.25% due 12/01/2024 2,024
AAA Aaa 1,500 Minneapolis, Minnesota, Sales Tax Refunding Bonds, GO, UT, 6.25%
due 4/01/2012 1,637
AAA Aaa 1,300 Minnesota Public Facilities Authority, Water, PCR, Series A, 6.50%
due 3/01/2002 (g) 1,442
AAA Aaa 1,500 Minnesota State, GO, UT, 6% due 10/01/2014 1,627
Minnesota State, HFA, S/F Mortgage:
AA+ Aa2 1,750 AMT, Series E, 6.85% due 1/01/2024 1,856
AA+ Aa2 1,400 AMT, Series L, 6.70% due 7/01/2020 1,492
AA+ Aa2 800 Series A, 6.95% due 7/01/2016 860
AA+ Aa2 1,545 Series D-1, 6.50% due 1/01/2017 1,643
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) 1,057
NR* A2 740 Minnesota State Higher Educational Facilities Authority
Revenue Bonds (Saint Thomas University), Series 4-P, 5.40%
due 4/01/2023 754
Minnesota State Higher Educational Facilities Authority, Revenue
Refunding Bonds (Macalester College), Series 3-J:
NR* Aa3 550 6.30% due 3/01/2014 588
NR* Aa3 2,250 6.40% due 3/01/2022 2,410
NR* A 750 Northfield, Minnesota, College Facilities Revenue Refunding Bonds
(Saint Olaf College Project), 6.40% due 10/01/2021 816
AA A1 200 Red Wing, Minnesota, PCR (Northern States Power Company Project),
VRDN, 3.60% due 3/01/2011 (a) 200
AA+ NR* 3,450 Rochester, Minnesota, Health Care Facilities Revenue Bonds
(Mayo Foundation), IRS, Series H, 8.118% due 11/15/2015 (I) 4,045
AAA Aaa 1,000 Saint Francis, Minnesota, Independent School District No. 015, UT,
Series A, 6.35% due 2/01/2013 (f) 1,134
Saint Paul, Minnesota, Housing and Redevelopment Authority
Revenue Bonds:
A- NR* 1,750 Parking, Series A, 6.55% due 8/01/2000 (g) 1,891
AAA NR* 840 Refunding, S/F Mortgage, Series C, 6.95% due 12/01/2031 (e) 905
Sartell, Minnesota, Refunding (Champion International):
BBB Baa1 990 IDR, 6.95% due 7/01/2012 1,082
BBB Baa1 665 PCR, 6.95% due 10/01/2012 731
AAA Aaa 795 Western Minnesota Municipal Power Agency, Power Supply Revenue
Bonds, Series A, 6.375% due 1/01/2016 (d) 902
Total Investments (Cost -- $43,175) -- 98.6% 46,810
Other Assets Less Liabilities -- 1.4% 651
----------
Net Assets -- 100.0% $47,461
==========
(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, 1998.
(b) MBIA Insured.
(c) Connie Lee Insured.
(d) Escrowed to Maturity.
(e) FNMA Collateralized.
(f) FSA 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, 1998.
* 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, 1998
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $43,175,047)(Note 1a) $46,810,113
Cash 6,864
Receivables:
Interest $750,577
Beneficial interest sold 261,615 1,012,192
-------------
Prepaid registration fees and other assets (Note 1e) 12,702
-------------
Total assets 47,841,871
-------------
Liabilities: Payables:
Beneficial interest redeemed 235,132
Dividends to shareholders (Note 1f) 35,714
Investment adviser (Note 2) 22,236
Distributor (Note 2) 17,351 310,433
-------------
Accrued expenses and other liabilities 70,659
-------------
Total liabilities 381,092
=============
Net Assets: Net assets $47,460,779
=============
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited number of
Consist of: shares authorized $58,437
Class B Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 358,607
Class C Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 13,036
Class D Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 7,785
Paid-in capital in excess of par 44,254,003
Accumulated realized capital losses on investments -- net (Note 5) (866,155)
Unrealized appreciation on investments -- net 3,635,066
-------------
Net assets $47,460,779
=============
Net Asset Value: Class A -- Based on net assets of $6,333,210 and 584,366 shares of
beneficial interest outstanding $10.84
=============
Class B -- Based on net assets of $38,870,044 and 3,586,071 shares of
beneficial interest outstanding $10.84
=============
Class C -- Based on net assets of $1,413,172 and 130,356 shares of
beneficial interest outstanding $10.84
=============
Class D -- Based on net assets of $844,353 and 77,848 shares of
beneficial interest outstanding $10.85
=============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Six Months Ended
January 31, 1998
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned $1,421,775
(Note 1d):
Expenses: Investment advisory fees (Note 2) $132,586
Account maintenance and distribution fees -- Class B (Note 2) 100,709
Professional fees 29,664
Accounting services (Note 2) 15,113
Transfer agent fees -- Class B (Note 2) 14,271
Printing and shareholder reports 13,921
Registration fees (Note 1e) 7,834
Account maintenance and distribution fees -- Class C (Note 2) 3,709
Custodian fees 2,102
Transfer agent fees -- Class A (Note 2) 1,767
Trustees' fees and expenses 1,396
Transfer agent fees -- Class C (Note 2) 441
Account maintenance fees -- Class D (Note 2) 423
Transfer agent fees -- Class D (Note 2) 256
-------------
Total expenses 324,192
-------------
Investment income -- net 1,097,583
-------------
Realized & Realized gain on investments -- net 295,120
Unrealized Gain on Change in unrealized appreciation on investments -- net 236,788
Investments -- Net -------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $1,629,491
=============
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, 1998 July 31, 1997
<S> <C> <C> <C>
Operations: Investment income -- net $1,097,583 $2,404,683
Realized gain on investments -- net 295,120 896,743
Change in unrealized appreciation on investments -- net 236,788 1,244,511
------------- -------------
Net increase in net assets resulting from operations 1,629,491 4,545,937
------------- -------------
Dividends & Investment income -- net:
Distibutions to Class A (146,061) (280,685)
Shareholders Class B (903,675) (2,028,556)
(Note 1f): Class C (27,111) (54,617)
Class D (20,736) (40,825)
Realized gain on investment -- net:
Class A (2,415) --
Class B (15,059) --
Class C (477) --
Class D (317) --
------------- -------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (1,115,851) (2,404,683)
------------- -------------
Beneficial Interest Net decrease in net assets derived from beneficial
Transactions interest transactions (1,841,392) (9,836,070)
(Note 4): ------------- -------------
Net Assets: Total decrease in net assets (1,327,752) (7,694,816)
Beginning of period 48,788,531 56,483,347
------------- -------------
End of period $47,460,779 $48,788,531
============= =============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Class A
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended For the Year Ended July 31,
Jan. 31, 1998 1997 1996 1995 1994
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.72 $10.28 $10.31 $10.33 $10.83
Operating --------- --------- --------- --------- ---------
Performance: Investment income -- net .27 .53 .54 .55 .55
Realized and unrealized gain (loss) on
investments -- net .12 .44 (.03) (.02) (.35)
--------- --------- --------- --------- ---------
Total from investment operations .39 .97 .51 .53 .20
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income -- net (.27) (.53) (.54) (.55) (.55)
Realized gain on investments -- net --+ -- -- -- --
In excess of realized gain on
investments -- net -- -- -- -- (.15)
--------- --------- --------- --------- ---------
Total dividends and distributions (.27) (.53) (.54) (.55) (.70)
--------- --------- --------- --------- ---------
Net asset value, end of period $10.84 $10.72 $10.28 $10.31 $10.33
========= ========= ========= ========= =========
Total Investment Based on net asset value per share 3.75%++++ 9.71% 4.98% 5.44% 1.87%
Return:** ========= ========= ========= ========= =========
Ratios to Average Expenses, net of reimbursement .90%* .92% .84% .75% .69%
Net Assets: ========= ========= ========= ========= =========
Expenses .90%* .92% .95% .92% 1.03%
========= ========= ========= ========= =========
Investment income -- net 5.00%* 5.09% 5.16% 5.51% 5.18%
========= ========= ========= ========= =========
Supplemental Net assets, end of period (in thousands) $6,333 $5,390 $5,884 $6,936 $8,810
Data: ========= ========= ========= ========= =========
Portfolio turnover 15.76% 28.42% 53.99% 22.36% 58.67%
========= ========= ========= ========= =========
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Amount is less than $.01 per share.
++++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Class B
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended For the Year Ended July 31,
Jan. 31, 1998 1997 1996 1995 1994
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.72 $10.28 $10.31 $10.33 $10.83
Operating --------- --------- --------- --------- ---------
Performance: Investment income -- net .24 .48 .48 .50 .50
Realized and unrealized gain (loss) on
investments -- net .12 .44 (.03) (.02) (.35)
--------- --------- --------- --------- ---------
Total from investment operations .36 .92 .45 .48 .15
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income -- net (.24) (.48) (.48) (.50) (.50)
Realized gain on investments -- net --+ -- -- -- --
In excess of realized gain on
investments -- net -- -- -- -- (.15)
--------- --------- --------- --------- ---------
Total dividends and distributions (.24) (.48) (.48) (.50) (.65)
--------- --------- --------- --------- ---------
Net asset value, end of period $10.84 $10.72 $10.28 $10.31 $10.33
========= ========= ========= ========= =========
Total Investment Based on net asset value per share 3.48%++++ 9.15% 4.44% 4.91% 1.35%
Return:** ========= ========= ========= ========= =========
Ratios to Average Expenses, net of reimbursement 1.41%* 1.43% 1.35% 1.27% 1.21%
Net Assets: ========= ========= ========= ========= =========
Expenses 1.41%* 1.43% 1.46% 1.44% 1.54%
========= ========= ========= ========= =========
Investment income -- net 4.49%* 4.58% 4.64% 5.00% 4.70%
========= ========= ========= ========= =========
Supplemental Net assets, end of period (in thousands) $38,870 $41,274 $48,696 $52,023 $56,960
Data: ========= ========= ========= ========= =========
Portfolio turnover 15.76% 28.42% 53.99% 22.36% 58.67%
========= ========= ========= ========= =========
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Amount is less than $.01 per share.
++++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Class C
For For the
the Six Period
The following per share data and ratios have been derived Months Oct. 21,
from information provided in the financial statements. Ended For the Year 1994++ to
Jan. 31, Ended July 31, July 31,
1998 1997 1996 1995
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.72 $10.28 $10.31 $9.99
Operating --------- --------- --------- ---------
Performance: Investment income -- net .24 .47 .47 .37
Realized and unrealized gain (loss) on
investments -- net .12 .44 (.03) .32
--------- --------- --------- ---------
Total from investment operations .36 .91 .44 .69
--------- --------- --------- ---------
Less dividends and distributions:
Investment income -- net (.24) (.47) (.47) (.37)
Realized gain on investments -- net --+ -- -- --
--------- --------- --------- ---------
Total dividends and distributions (.24) (.47) (.47) (.37)
--------- --------- --------- ---------
Net asset value, end of period $10.84 $10.72 $10.28 $10.31
========= ========= ========= =========
Total Investment Based on net asset value per share 3.43%++++ 9.04% 4.33% 7.13%++++
Return:** ========= ========= ========= =========
Ratios to Average Expenses, net of reimbursement 1.51%* 1.53% 1.48% 1.46%*
Net Assets: ========= ========= ========= =========
Expenses 1.51%* 1.53% 1.57% 1.61%*
========= ========= ========= =========
Investment income -- net 4.39%* 4.48% 4.50% 4.70%*
========= ========= ========= =========
Supplemental Net assets, end of period (in thousands) $1,413 $1,201 $1,219 $375
Data: ========= ========= ========= =========
Portfolio turnover 15.76% 28.42% 53.99% 22.36%
========= ========= ========= =========
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Amount is less than $.01 per share.
++ Commencement of operations.
++++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Class D
For For the
the Six Period
The following per share data and ratios have been derived Months Oct. 21,
from information provided in the financial statements. Ended For the Year 1994++ to
Jan. 31, Ended July 31, July 31,
1998 1997 1996 1995
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.35 $9.92 $9.85 $9.48
Operating --------- --------- --------- ---------
Per Share Net asset value, beginning of period $10.73 $10.28 $10.31 $9.99
Operating --------- --------- --------- ---------
Performance: Investment income -- net .27 .52 .53 .41
Realized and unrealized gain (loss) on
investments -- net .12 .45 (.03) .32
--------- --------- --------- ---------
Total from investment operations .39 .97 .50 .73
--------- --------- --------- ---------
Less dividends and distributions:
Investment income -- net (.27) (.52) (.53) (.41)
Realized gain on investments -- net --+ -- -- --
--------- --------- --------- ---------
Total dividends and distributions (.27) (.52) (.53) (.41)
--------- --------- --------- ---------
Net asset value, end of period $10.85 $10.73 $10.28 $10.31
========= ========= ========= =========
Total Investment Based on net asset value per share 3.69%++++ 9.70% 4.88% 7.57%++++
Return:** ========= ========= ========= =========
Ratios to Average Expenses, net of reimbursement 1.00%* 1.02% .94% .92%*
Net Assets: ========= ========= ========= =========
Expenses 1.00%* 1.02% 1.05% 1.07%*
========= ========= ========= =========
Investment income -- net 4.90%* 4.99% 5.05% 5.27%*
========= ========= ========= =========
Supplemental Net assets, end of period (in thousands) $845 $924 $684 $796
========= ========= ========= =========
Portfolio turnover 15.76% 28.42% 53.99% 22.36%
========= ========= ========= =========
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Amount is less than $.01 per share.
++ Commencement of operations.
++++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Minnesota Municipal Bond Fund January 31, 1998
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 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 financial 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) Prepaid registration fees -- 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 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 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, 1998, MLFD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the Fund's
Class A and Class D Shares as follows:
MLFD MLPF&S
Class A $40 $480
Class D $8 $89
For the six months ended January 31, 1998, MLPF&S received contingent
deferred sales charges of $12,536 relating to transactions in Class B
Shares.
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, 1998 were $7,478,468 and
$7,306,392, respectively.
Net realized gains for the six months ended January 31, 1998 and net
unrealized gains as of January 31, 1998 were as follows:
Realized Unrealized
Gains (Losses) Gains
Long-term investments $295,120 $3,635,066
------------ ------------
Total $295,120 $3,635,066
============ ============
As of January 31, 1998, net unrealized appreciation for Federal
income tax purposes aggregated $3,635,066, all of which related to
appreciated securities. The aggregate cost of investments at January
31, 1998 for Federal income tax purposes was $43,175,047.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest
transactions was $1,841,392 and $9,836,070 for the six months ended
January 31, 1998 and for the year ended July 31, 1997, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Six Dollar
Months Ended Jan. 31, 1998 Shares Amount
Shares sold 118,287 $1,260,623
Shares issued to shareholders
in reinvestment of dividends
and distributions 9,216 98,736
------------ ------------
Total issued 127,503 1,359,359
Shares redeemed (45,948) (490,791)
------------ ------------
Net increase 81,555 $868,568
============ ============
Class A Shares for the Dollar
Year 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 B Shares for the Six Dollar
Months Ended Jan. 31, 1998 Shares Amount
Shares sold 132,622 $1,424,002
Shares issued to shareholders
in reinvestment of dividends
and distributions 46,000 492,305
------------ ------------
Total issued 178,622 1,916,307
Shares redeemed (442,670) (4,737,200)
------------ ------------
Net decrease (264,048) $(2,820,893)
============ ============
Class B Shares for the Dollar
Year 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 C Shares for the Six Dollar
Months Ended Jan. 31, 1998 Shares Amount
Shares sold 19,875 $214,817
Shares issued to shareholders
in reinvestment of dividends
and distributions 1,855 19,862
------------ ------------
Total issued 21,730 234,679
Shares redeemed (3,385) (36,530)
------------ ------------
Net increase 18,345 $198,149
============ ============
Class C Shares for the Dollar
Year 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 D Shares for the Six Dollar
Months Ended Jan. 31, 1998 Shares Amount
Shares sold 1,696 $18,390
Shares issued to shareholders
in reinvestment of dividends
and distributions 839 8,988
------------ ------------
Total issued 2,535 27,378
Share redeemed (10,776) (114,594)
------------ ------------
Net decrease (8,241) $(87,216)
============ ============
Class D Shares for the Dollar
Year 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
============ ============
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.
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
