MERRILL
LYNCH
NORTH
CAROLINA
MUNICIPAL
BOND FUND
Annual Report July 31, 1994
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Merrill Lynch North Carolina
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, New Jersey
08543-9011
<PAGE>
TO OUR SHAREHOLDERS
The expectation of increasing inflationary pressures and higher
interest rates initially heightened investor concerns and increased
financial market volatility during the July quarter. However, as the
quarter progressed, it was the weakness of the US dollar in foreign
exchange markets that dominated the financial news and prolonged
stock and bond market declines. Although the US dollar had
strengthened slightly by July quarter-end, which may have improved
investor confidence in the stock and bond markets, the possibility
of continued tightening by the Federal Reserve Board resurfaced
following Chairman Alan Greenspan's recent congressional testimony.
Nevertheless, as the quarter drew to a close, a lower-than-expected
rate of growth reported for the US economy during the second
calendar quarter allayed investor concerns and led to stock and bond
market rallies.
During the July quarter, the US dollar's weakness relative to other
major currencies reflected the deteriorating US trade deficit and
widening net long-term capital outflows. In 1993, an expanding US
economy and recession in other industrial countries led to a higher
level of imports and weaker export growth, widening the US trade
deficit further. In addition, global investors favored non-US dollar
denominated assets throughout 1993, which has further depressed the
dollar's value. This trend is not improving significantly thus far
in 1994 since foreign inflows into US capital markets continue to
decline, although US investors are investing outside of the United
States to a lesser degree.
Over the longer term, if the economies of the United States' major
trading partners expand (improving the prospects for US export
growth), the outlook for the US dollar is likely to improve. In the
near term, central banks have attempted to reverse the dollar's
decline through currency market intervention. These efforts have met
with limited success thus far, giving rise to the concern that the
Federal Reserve Board will be forced to continue to raise short-term
interest rates to attract investment capital back to the United
States and bolster the dollar's value. However, further interest
rate increases may jeopardize the US economic expansion. Despite
evidence of a moderating trend in the US economy, Federal Reserve
Board Chairman Alan Greenspan indicated in his July Humphrey-Hawkins
testimony that the central bank would prefer to err on the side of
too much monetary tightening rather than too little. In the weeks
ahead, investors will continue to assess economic data and
inflationary trends as they focus on the US dollar in order to gauge
whether further increases in short-term interest rates are imminent.
Continued indications of moderate and sustainable levels of economic
growth would be positive for the US capital markets.
<PAGE>
The Municipal Market
Long-term tax-exempt bond yields ended the July quarter essentially
unchanged. The Bond Buyer Revenue Bond Index rose five basis points
(0.05%) to 6.47%. The Index, however, failed to capture the dramatic
bond rally on July 29, 1994, when municipal bond yields had their
largest one-day decline thus far this year. Responding to reports of
a continued mild inflationary outlook and a potentially weakening
economy, municipal bond yields declined by approximately 10 basis
points. US Treasury bonds displayed a similar pattern over the last
three months, ending with an equally dramatic rally on July 29,
1994. Long-term US Treasury bonds ended the quarter yielding
approximately 7.40%.
The tax-exempt bond market has continued to be very volatile with
yields fluctuating by as much as 15 basis points from week to week.
This continued volatility is largely a reflection of the same lack
of conviction regarding the near-term direction of interest rates
that has prevailed for much of 1994. Throughout this past quarter,
the municipal bond market had been unable to maintain a consensus
regarding either the potential strength of the current economic
recovery or the resultant response by the Federal Reserve Board.
However, a number of economic indicators released in late July began
to suggest that the robust pace of recent economic growth was
slowing. This promoted a more positive market environment,
culminating in the market rally on July 29.
The municipal bond market's technical position has remained
supportive. Approximately $40 billion in long-term securities were
issued during the three months ended July 31, 1994. This represents
a decline of over 50% versus the July quarter from the previous
year. As discussed in earlier reports, this reduction in new-issue
supply has minimized the selling pressure by larger institutional
investors who fear being unable to purchase sizable amounts of
securities in the future. Such a significant decline in issuance
would normally be expected to trigger a decline in yields as
investors chase a commodity in scarce supply. Investor demand,
however, has also diminished somewhat in recent months as net flows
into long-term municipal bond funds have dramatically slowed or, in
some instances, reversed. Consequently, the supply/demand
relationship within the municipal bond market has remained in
balance, promoting the overall stability in yield levels seen in the
past months.
With after-tax equivalents in excess of 10%, long-term tax-exempt
bonds continue to represent considerable value relative to other
investment alternatives. We continue to anticipate that municipal
bond yields will decline further in late 1994 and into 1995. The
economic impact of the significant interest rate increases
experienced since early February have yet to be totally realized.
The resultant drag on the economy should provide the foundation for
further interest rate declines. Under such a scenario, current tax-
exempt bond yields may prove to represent considerable value.
<PAGE>
Fiscal Year in Review
The fiscal year ended July 31, 1994 was a volatile and unsettled
time. For the first half of the Fund's fiscal year interest rates
continued to decline as the economy showed signs of slow growth. The
Bond Buyer Revenue Bond Index declined to 5.41% and the bellwether
30-year US Treasury bond declined to 6%. During this period, the
Fund was fully invested in performance-oriented municipal bonds.
After economic results of a surprisingly strong fourth quarter were
released, the market was compelled to reverse course. Within the
next few months, the Federal Reserve Board raised interest rates
four times. Because of these actions, the Bond Buyer Revenue Bond
Index rose to 6.60% and the 30-year bond rose to approximately
7.75%. In response, we restructured the portfolio in a more
defensive posture. The Fund was able to raise cash and buy higher-
coupon securities to help preserve shareholders' capital. During
this turbulent time, we emphasized quality securities with 85% of
the portfolio rated A or better. More recently, the municipal bond
market has settled into a trading range which has allowed us to take
advantage of purchasing higher-coupon securities, thus giving
shareholders a competitive level of tax-exempt income. This strategy
helped improve the performance of the Fund in a rising interest rate
environment. Demand for North Carolina municipal bonds is strong as
supply volume remains low. In addition, new-issue municipal bond
supply in North Carolina is down 47% for the three-month period
ended July 31, 1994 compared to the same quarter last year. The
supply picture has allowed the North Carolina sector of the tax-
exempt market to continue to outperform the general market. Looking
forward, we will continue to invest new money in high-quality,
attractively priced securities which are expected to yield generous
amounts of tax-exempt income while seeking superior price
appreciation.
We appreciate your ongoing interest in Merrill Lynch North Carolina
Municipal Bond Fund, and we look forward to assisting you with your
financial needs in the months and years ahead.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Vice President and Portfolio Manager
August 18, 1994
<PAGE>
PERFORMANCE DATA
None of the past results shown should be considered a representation
of future performance. Investment return and principal value of
Class A and Class B Shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Average Annual Total Return--Class A Shares*
% Return Without % Return With
Sales Charge Sales Charge**
Year Ended 6/30/94 -0.97% -4.93%
Inception (9/25/92)
through 6/30/94 +5.67 +3.25
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
Total Return Based on a $10,000 Investment--Class A Shares
GRAPHIC MATERIAL APPEARS HERE.
SEE APPENDIX GRAPHIC AND IMAGE MATERIALS ITEM 1.
Average Annual Total Return--Class B Shares*
% Return % Return
Without CDSC With CDSC**
Year Ended 6/30/94 -1.56% -5.29%
Inception (9/25/92)
through 6/30/94 +5.09 +3.44
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced
to 0% after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
Total Return Based on a $10,000 Investment--Class B Shares*
GRAPHIC MATERIAL APPEARS HERE.
SEE APPENDIX GRAPHIC AND IMAGE MATERIALS ITEM 2.
<PAGE>
PERFORMANCE DATA (concluded)
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
9/25/92--12/31/92 $10.00 $10.16 -- $0.138 + 3.00%
1993 10.16 10.90 -- 0.616 +13.62
1/1/94--7/31/94 10.90 10.19 -- 0.302 - 3.65
------
Total $1.056
Cumulative total return as of 7/31/94: +12.76%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date, and do not
include sales charge; results would be lower if sales charge was
included.
</TABLE>
<TABLE>
Performance Summary--Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
9/25/92--12/31/92 $10.00 $10.16 -- $0.124 + 2.86%
1993 10.16 10.90 -- 0.562 +13.06
1/1/94--7/31/94 10.90 10.19 -- 0.273 - 3.92
------
Total $0.959
Cumulative total return as of 7/31/94: +11.73%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
<PAGE>
<TABLE>
Recent Performance Results*
<CAPTION>
12 Month 3 Month
7/31/94 4/30/94 7/31/93 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares $10.19 $10.08 $10.67 -4.50% +1.09%
Class B Shares 10.19 10.08 10.67 -4.50 +1.09
Class A Shares--Total Return +1.11(1) +2.43(2)
Class B Shares--Total Return +0.60(3) +2.30(4)
Class A Shares--Standardized 30-day Yield 5.25%
Class B Shares--Standardized 30-day Yield 4.97%
<FN>
*Investment results shown for the 3-month and 12-month periods are before the deduction of any sales charges.
(1)Percent change includes reinvestment of $0.607 per share ordinary income dividends
(2)Percent change includes reinvestment of $0.134 per share ordinary income dividends.
(3)Percent change includes reinvestment of $0.553 per share ordinary income dividends
(4)Percent change includes reinvestment of $0.121 per share ordinary income dividends.
</TABLE>
PORTFOLIO ABBREVIATIONS
To simplify the listings of Merrill Lynch North Carolina
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)
COP Certificates of Participation
DATES Daily Adjustable Tax-Exempt Securities
GO General Obligation Bonds
HFA Housing Finance Agency
LEVRRS Leverage Reverse Rate Securities
RIB Residual Interest Bonds
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
North Carolina--88.1%
<S> <S> <C> <S> <C>
AAA Aaa $1,500 Buncombe County, North Carolina, Metropolitan Sewer District
Sewer Systems, Revenue Refunding Bonds, Series A, 5.50%
due 7/01/2022(f) $ 1,378
AAA Aaa 600 Catawba County, North Carolina, Hospital Revenue Refunding
Bonds (Catawba Memorial Hospital Project), 6.20% due 10/01/2009 (b) 613
AAA VMIG1 1,300 Charlotte, North Carolina, Airport Revenue Refunding Bonds,
Series A, VRDN, 1.80% due 7/01/2016 (a) (c) 1,300
Charlotte, North Carolina, COP (Convention Facility Project) (b):
AAA Aaa 2,500 6.75% due 12/01/2001 (g) 2,784
AAA Aaa 1,490 Refunding, Series C, 5.25% due 12/01/2020 1,313
AA Aa 3,000 Charlotte, North Carolina, Health Care System, Revenue Refunding Bonds
(Charlotte-Mecklenberg Hospital Authority), 6.25% due 1/01/2020 3,010
A A2 500 Chatham County, North Carolina, Industrial Facilities and
Pollution Control Financing Authority, Pollution Revenue Bonds
(Carolina Power and Light Company),6.30% due 6/15/2014 505
AAA Aaa 1,000 Concord, North Carolina, Utilities System Revenue Bonds, 5.75%
due 12/01/2017 (c) 958
Craven County, North Carolina, Industrial Facilities and Pollution
Control Financing Authority, Resources Revenue Bonds (Craven
Wood Energy), VRDN, AMT (a):
NR Aa1 1,900 Series B, 3% due 5/01/2011 1,900
NR Aa1 500 Series C, 3% due 5/01/2011 500
AAA Aaa 1,000 Durham County, North Carolina, GO, UT, 5.75% due 2/01/2011 1,003
AAA Aaa 500 Fayetteville, North Carolina, Public Works Commission Revenue
Bonds, Series A, 6% due 3/01/2016 (d) 501
AAA Aaa 1,000 Gastonia, North Carolina, Combined Utilities System Revenue
Bonds, 6% due 5/01/2014 (c) 1,002
AAA Aa1 1,000 Greensboro, North Carolina, Public Improvement Bonds, UT, 6.30%
due 3/01/2010 1,054
<PAGE>
NR Aa2 100 Halifax County, North Carolina, Industrial Facilities and Pollution
Control Financing Authority, Exempt Facilities Revenue Bonds, VRDN,
AMT, 2.90% due 12/01/2019 (a) 100
BBB Baa1 2,500 Haywood County, North Carolina, Industrial Facilities and Pollution
Control Financing Authority, Solid Waste Disposal Revenue Bonds
(Champion International Corporation Project), AMT, 5.50%
due 10/01/2018 2,140
A A2 3,500 Martin County, North Carolina, Industrial Facilities and Pollution
Control Financing Authority Revenue Bonds (Solid Waste Weyerhaeuser
Company), AMT, 6.80% due 5/01/2024 3,602
AAA Aaa 1,500 Mecklenburg County, North Carolina, Public Improvement Refunding
Bonds, GO, UT, 6.25% due 1/01/2002 (g) 1,621
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
North Carolina (concluded)
<S> <S> <C> <S> <C>
A A $1,000 Monroe, North Carolina, Combined Enterprise Systems Revenue Bonds,
6% due 3/01/2019 (k) $ 977
A A2 300 New Hanover County, North Carolina, Industrial Facilities and
Pollution Control Financing Authority Revenue Bonds (Carolina Power
and Light Company), 6.30% due 6/15/2014 306
North Carolina Eastern Municipal Power Agency, Power System Revenue
Refunding Bonds, Series A:
A- A 1,000 6.50% due 1/01/2017 1,001
A- Aaa 3,055 6.50% due 1/01/2018 (i) 3,258
North Carolina Educational Facilities, Finance Agency
Revenue Bonds:
NR VMIG1 200 (Bowman Grey School of Medicine Project), VRDN, 2.85%
due 9/01/2020 (a) 200
AA NR 1,000 Refunding (Davidson College Project), 6% due 12/01/2012 1,007
AAA NR 900 Refunding (Elon College Project), 6.375% due 1/01/2007 (e) 943
AA Aa 1,340 North Carolina HFA, Refunding Bonds, Series F, 6.60%
due 7/01/2017 (h) 1,357
<PAGE>
North Carolina HFA, S/F Revenue Bonds, GO:
A+ Aa 665 Series U, 6.70% due 3/01/2018 677
A+ Aa 2,755 Series V, AMT, 6.80% due 9/01/2025 2,813
A+ AA 2,000 Series W, 6.50% due 9/01/2018 2,034
A+ Aa 1,805 Series X, AMT, 6.70% due 9/01/2026 1,827
North Carolina Medical Care Community, Hospital Revenue Bonds:
NR Baa1 800 (Halifax Memorial Hospital Project), 6.75% due 8/15/2024 790
A+ A 2,000 (Moore Regional Hospital Project), 5% due 10/01/2018 1,662
A+ A1 1,500 (Rex Hospital Project), 6.25% due 6/01/2017 1,498
AAA Aaa 1,000 (Wilson Memorial Hospital Project), 6.50% due 11/01/2020 (b) 1,023
A A 4,350 North Carolina Municipal Power Agency, Number 1, Catawba Electric
Revenue Refunding Bonds (Catawba Electric Project Number 1), 6.25%
due 1/01/2017 4,339
NR VMIG1 200 Person County, North Carolina, Industrial Facilities and Pollution
Control Financing Authority, Solid Waste Disposal Revenue Bonds
(Carolina Power and Light Company), AMT, DATES, 2.60% due
11/01/2016 (a) 200
AAA Aaa 1,000 Piedmont Triad Airport Authority, North Carolina, Airport Revenue
Refunding Bonds,5% due 7/01/2016 (c) 858
A+ A 800 Rocky Mountain, North Carolina, Water and Sewer Bonds, GO, UT,
6.30% due 5/01/2009 822
A- A 700 Shelby, North Carolina, Combined Producing Facilities System
Revenue Bonds (Capital Improvement), 6.625% due 6/01/2017 (k) 717
AA- A1 800 University of North Carolina, Chapel Hill, Hospital Revenue
Bonds (Board of Governors),6.375% due 2/15/2017 801
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Puerto Rico--10.8%
<S> <S> <C> <S> <C>
Puerto Rico Commonwealth, Highway and Transportation Authority,
Highway Revenue Bonds, Series T:
AAA NR $1,000 6.50% due 7/01/2002 (g) $ 1,102
A NR 200 6.625% due 7/01/2002 (g) 222
A Baa1 800 6.625% due 7/01/2018 832
A Baa1 700 Puerto Rico Commonwealth, Public Improvement Bonds, GO, UT,
6.45% due 7/01/2017 719
AAA NR 700 Puerto Rico Commonwealth, Public Improvement Refunding Bonds,
GO, UT, Series A, 6.50% due 7/01/l999 (g) 752
AAA Aaa 1,250 Puerto Rico Commonwealth, RIB, 8.393% due 7/01/2020 (d)(j) 1,178
A- Baa1 1,500 Puerto Rico Electric Power Authority, Power Revenue Refunding
Bonds, Series O, 6% due 7/01/2010 1,501
AAA Aaa 400 Puerto Rico Electric Power Authority Revenue Bonds, RIB,
8.578% due 7/01/2023 (d)(j) 387
Total Investments (Cost--$61,124)--98.9% 61,087
Other Assets Less Liabilities--1.1% 649
-------
Net Assets--100.0% $61,736
=======
<FN>
(a)The interest rate is subject to change periodically based upon
the prevailing market rate. The interest rates shown are those in
effect at July 31, 1994.
(b)AMBAC Insured.
(c)MBIA Insured.
(d)FSA Insured.
(e)Insured by Connie Lee.
(f)FGIC Insured.
(g)Prerefunded.
(h)FHA Insured.
(i)Escrowed to maturity.
(j)The interest rate is subject to change periodically and inversely
based on the prevailing market rates. The interest rates shown are
those in effect at July 31, 1994.
(k)Bank Qualified.
NR--Not Rated.
Ratings shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of July 31, 1994
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$61,124,314) (Note 1a) $61,086,463
Cash 14,124
Receivables:
Interest $701,437
Beneficial interest sold 222,742 924,179
--------
Deferred organization expenses (Note 1e) 32,434
Prepaid expenses and other assets (Note 1e) 11,081
-----------
Total assets 62,068,281
===========
Liabilities: Payables:
Beneficial interest redeemed 173,536
Dividends to shareholders (Note 1f) 51,007
Distributor (Note 2) 21,177
Investment adviser (Note 2) 10,325 256,045
--------
Accrued expenses and other liabilities 76,459
-----------
Total liabilities 332,504
-----------
Net Assets: Net assets $61,735,777
===========
Net Assets Class A Shares of beneficial interest, $.10 par value,
Consist of: unlimited number of shares authorized $ 108,692
Class B Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 497,321
Paid-in capital in excess of par 62,192,845
Accumulated realized capital losses--net (667,785)
Accumulated distributions in excess of realized capital
gains--net (357,445)
Unrealized depreciation on investments--net (37,851)
-----------
Net assets $61,735,777
===========
Net Asset Value: Class A--Based on net assets of $11,071,374 and 1,086,922 shares of
beneficial interest outstanding $ 10.19
===========
Class B--Based on net assets of $50,664,403 and 4,973,211 shares of
beneficial interest outstanding $ 10.19
===========
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended July 31, 1994
<S> <S> <C>
Investment Interest and amortization of premium and discount earned $ 3,319,821
Income
(Note 1d):
Expenses: Investment advisory fees (Note 2) 323,712
Distribution fees--Class B (Note 2) 239,381
Professional fees 74,205
Printing and shareholder reports 58,979
Accounting services (Note 2) 36,512
Transfer agent fees--Class B (Note 2) 25,328
Custodian fees 13,157
Amortization of organization expenses (Note 1e) 10,257
Registration fees (Note 1e) 7,822
Pricing fees 6,564
Transfer agent fees--Class A (Note 2) 5,017
Trustees' fees and expenses 2,496
Other 1,344
-----------
Total expenses before reimbursement 804,774
Reimbursement of expenses (Note 2) (268,326)
-----------
Total expenses after reimbursement 536,448
-----------
Investment income--net 2,783,373
-----------
Realized & Realized loss on investments--net (685,668)
Unrealized Change in unrealized depreciation on investments--net (2,097,393)
Losses on -----------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 312
(Notes 1d & 3): ===========
</TABLE>
<PAGE>
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the For the Period
Year Ended Sept. 25, 1992++
Increase (Decrease) in Net Assets: July 31, 1994 to July 31, 1993
<S> <S> <C> <C>
Operations: Investment income--net $ 2,783,373 $ 1,334,089
Realized gain (loss) on investments--net (685,668) 17,883
Change in unrealized appreciation/depreciation
on investments--net (2,097,393) 2,059,542
----------- -----------
Net increase in net assets resulting from operations 312 3,411,514
----------- -----------
Dividends & Investment income--net:
Distributions to Class A (564,183) (263,852)
Shareholders Class B (2,219,190) (1,070,237)
(Note 1f): In excess of realized gain on investments--net:
Class A (70,229) --
Class B (287,216) --
----------- -----------
Net decrease in net assets resulting from dividends
and distributions to shareholders (3,140,818) (1,334,089)
----------- -----------
Beneficial Net increase in net assets derived from beneficial
Interest interest transactions 15,594,348 47,104,510
Transactions ----------- -----------
(Note 4):
Net Assets: Total increase in net assets 12,453,842 49,181,935
Beginning of period 49,281,935 100,000
----------- -----------
End of period $61,735,777 $49,281,935
=========== ===========
<FN>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
Class A
For the
Period
The following per share data and ratios have been derived For the September 25,
from information provided in the financial statements. Year Ended 1992++
July 31, to July 31,
Increase (Decrease) in Net Asset Value: 1994 1993
<S> <C> <C>
Per Share Net asset value, beginning of period $ 10.67 $ 10.00
Operating --------- ---------
Performance: Investment income--net .54 .46
Realized and unrealized gain (loss) on
investments--net (.42) .67
--------- ---------
Total from investment operations .12 1.13
--------- ---------
Less dividends and distributions:
Investment income--net (.54) (.46)
In excess of realized gain on
investments--net (.06) --
--------- ---------
Total dividends and distributions (.60) (.46)
--------- ---------
Net asset value, end of period $ 10.19 $ 10.67
========= =========
Total Based on net asset value per share 1.11% 11.52%+++
Investment ========= =========
Return**
Ratios to Expenses, excluding distribution fees and
Average net of reimbursement .50% .20%*
Net Assets: ========= =========
Expenses, net of reimbursement .50% .20%*
========= =========
Expenses .96% 1.15%*
========= =========
Investment income--net 5.14% 5.26%*
========= =========
<PAGE>
Supplemental Net assets, end of period (in thousands) $ 11,071 $ 9,311
Data: ========= =========
Portfolio turnover 74.35% 27.98%
========= =========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class B
For the
Period
The following per share data and ratios have been derived For the September 25,
from information provided in the financial statements. Year Ended 1992++
July 31, to July 31,
Increase (Decrease) in Net Asset Value: 1994 1993
<S> <C> <C>
Per Share Net asset value, beginning of period $ 10.67 $ 10.00
Operating --------- ---------
Performance: Investment income--net .49 .41
Realized and unrealized gain (loss) on investments--net (.42) .67
--------- ---------
Total from investment operations .07 1.08
--------- ---------
Less dividends and distributions:
Investment income--net (.49) (.41)
In excess of realized gain on investments--net (.06) --
--------- ---------
Total dividends and distributions (.55) (.41)
--------- ---------
Net asset value, end of period $ 10.19 $ 10.67
========= =========
Total Based on net asset value per share 0.60% 11.06%+++
Investment ========= =========
Return:**
Ratios to Expenses, excluding distribution fees and net of reimbursement .51% .20%*
Average ========= =========
Net Assets: Expenses, net of reimbursement 1.01% .70%*
========= =========
Expenses 1.46% 1.67%*
========= =========
Investment income--net 4.64% 4.77%*
========= =========
Supplemental Net assets, end of period (in thousands) $ 50,664 $ 39,970
Data: ========= =========
Portfolio turnover 74.35% 27.98%
========= =========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch North Carolina Municipal Bond Fund (the "Fund") is
part of Merrill Lynch Multi-State Municipal Series Trust (the
"Trust"). The Fund is registered under the Investment Company Act of
1940 as a non-diversified, open-end management investment company.
The Fund offers both Class A and Class B Shares. Class A Shares are
sold with a front-end sales charge. Class B Shares may be subject to
a contingent deferred sales charge. Both classes of shares have
identical voting, dividend, liquidation and other rights and the
same terms and conditions, except that Class B Shares bear certain
expenses related to the distribution of such shares and have
exclusive voting rights with respect to matters relating to such
distribution expenditures. The following is a summary of significant
accounting policies followed by the Fund.
(a) Valuation of investments--Municipal bonds and other portfolio
securities in which the Fund invests are traded primarily in the
over-the-counter municipal bond and money markets and are valued at
the last available bid price in the over-the-counter market or on
the basis of yield equivalents as obtained from one or more dealers
that make markets in the securities. Financial futures contracts and
options thereon, which are traded on exchanges, are valued at their
settlement prices as of the close of such exchanges. Short-term
investments with remaining maturities of sixty days or less are
valued at amortized cost, which approximates market value. Options,
which are traded on exchanges, are valued at their last sale price
as of the close of such exchanges or, lacking any sales, at the last
available bid price. Securities and assets for which market
quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of
Trustees of the Trust, including valuations furnished by a pricing
service retained by the Trust, which may utilize a matrix system for
valuations. The procedures of the pricing service and its valuations
are reviewed by the officers of the Trust under the general
supervision of the Trustees.
<PAGE>
(b) Financial futures contracts--The Fund may purchase or sell
interest rate futures contracts and options on such futures
contracts for the purpose of hedging the market risk on existing or
the intended purchase of securities. Futures contracts are contracts
for delayed delivery of securities at a specific future date and at
a specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to
the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin
and are recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss equal
to the difference between the value of the contract at the time it
was opened and the value at the time it was closed.
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income is recognized on the accrual
basis. Discounts and market premiums are amortized into interest
income. Realized gains and losses on security transactions are
determined on the identified cost basis.
(e) Deferred organization expenses and prepaid registration fees--
Deferred organization expenses are charged to expense on a straight-
line basis over a five-year period. Prepaid registration fees are
charged to expense as the related shares are issued.
(f) Dividends and distributions--Dividends from net investment
income are declared daily and paid monthly. Distributions of capital
gains are recorded on the ex-dividend dates. Distributions in excess
of realized capital gains are due primarily to differing tax
treatments for futures transactions and post October losses.
<PAGE>
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). Effective January 1, 1994, the
investment advisory business of FAM was reorganized from a
corporation to a limited partnership. Both prior to and after the
reorganization, ultimate control of FAM was vested with Merrill
Lynch & Co., Inc. ("ML & Co."). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of ML & Co. The limited partners are ML & Co. and Fund
Asset Management, Inc. ("FAMI"), which is also an indirect wholly-
owned subsidiary of ML & Co. The Fund has also entered into
Distribution Agreements and a Distribution Plan with Merrill Lynch
Funds Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Investment Management, Inc. ("MLIM"),
which is also an indirect wholly-owned subsidiary of ML & Co.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee based upon the average daily
value of the Fund's net assets at the following annual rates: 0.55%
of the Fund's average daily net assets not exceeding $500 million;
0.525% of average daily net assets in excess of $500 million but not
exceeding $1 billion; and 0.50% of average daily net assets in
excess of $1 billion. For the year ended July 31, 1994, FAM earned
fees of $323,712, of which $264,567 was voluntarily waived. FAM also
reimbursed the Fund $3,759 of additional expenses.
The Fund has adopted a Plan of Distribution (the "Plan") in
accordance with Rule 12b-1 under the Investment Company Act of 1940,
pursuant to which the Fund pays the Distributor ongoing account
maintenance and distribution fees relating to Class B Shares, which
are accrued daily and paid monthly at the annual rates of 0.25% and
0.25%, respectively, of the average daily net assets of the Class B
Shares of the Fund. Pursuant to a sub-agreement with the
Distributor, Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S"),
an affiliate 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
distribution and account maintenance services to Class B
shareholders. As authorized by the Plan, the Distributor has entered
into an agreement with MLPF&S which provides for the compensation of
MLPF&S for providing distribution-related services to the Fund.
For the year ended July 31, 1994, MLFD earned underwriting discounts
of $6,609, and MLPF&S earned dealer concessions of $49,585 on sales
of the Fund's Class A Shares.
<PAGE>
MLPF&S also received contingent deferred sales charges of $58,588
relating to Class B Share transactions during the period.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of FAM, FAMI, PSI, MLIM, MLFD, FDS, MLPF&S, and/or ML &
Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended July 31, 1994 were $52,761,692 and $41,321,113,
respectively.
Realized
Gains Unrealized
(Losses) Losses
Long-term investments $(1,110,008) $ (37,851)
Short-term investments 124 --
Financial futures contracts 424,216 --
----------- -----------
Total $ (685,668) $ (37,851)
=========== ===========
As of July 31, 1994, net unrealized depreciation for Federal income
tax purposes aggregated $37,851, of which $1,088,799 related to
appreciated securities and $1,126,650 related to depreciated
securities. The aggregate cost of investments at July 31, 1994 for
Federal income tax purposes was $61,124,314.
4. Beneficial Interest Transactions:
Net increase in net assets derived from beneficial interest
transactions was $15,594,348 and $47,104,510 for the year ended July
31, 1994 and the period September 25, 1992 to July 31, 1993,
respectively.
Transactions in shares of beneficial interest for Class A and Class
B Shares were as follows:
<PAGE>
Class A Shares for the Year Dollar
Ended July 31, 1994 Shares Amount
Shares sold 461,410 $ 4,928,197
Shares issued to shareholders
in reinvestment of dividends
and distributions 29,035 307,049
---------- -----------
Total issued 490,445 5,235,246
Shares redeemed (276,285) (2,887,349)
---------- -----------
Net increase 214,160 $ 2,347,897
========== ===========
Class A Shares for the Period Dollar
Sept. 25, 1992++ to July 31, 1993 Shares Amount
Shares sold 1,069,200 $11,000,250
Shares issued to shareholders
in reinvestment of dividends
and distributions 8,291 86,876
---------- -----------
Total issued 1,077,491 11,087,126
Shares redeemed (209,729) (2,167,397)
---------- -----------
Net increase 867,762 $ 8,919,729
========== ===========
[FN]
++Prior to September 25, 1992 (commencement of operations), the
Fund issued 5,000 shares to FAM for $50,000.
Class B Shares for the Dollar
Year Ended July 31, 1994 Shares Amount
Shares sold 1,596,885 $17,101,455
Shares issued to shareholders
in reinvestment of dividends
and distributions 119,538 1,266,444
---------- -----------
Total issued 1,716,423 18,367,899
Shares redeemed (489,131) (5,121,448)
---------- -----------
Net increase 1,227,292 $13,246,451
========== ===========
<PAGE>
Class B Shares for the Period
September 25, 1992++ Dollar
to July 31, 1993 Shares Amount
Shares sold 3,868,435 $39,508,786
Shares issued to shareholders
in reinvestment of dividends
and distributions 41,874 437,748
---------- -----------
Total issued 3,910,309 39,946,534
Shares redeemed (169,390) (1,761,753)
---------- -----------
Net increase 3,740,919 $38,184,781
========== ===========
[FN]
++Prior to September 25, 1992 (commencement of operations),
the Fund issued 5,000 shares to FAM for $50,000.
OFFICERS AND TRUSTEES
Arthur Zeikel, President and Trustee
Kenneth S. Axelson, Trustee
Herbert I. London, Trustee
Robert R. Martin, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Terry K. Glenn, Executive Vice President
Donald C. Burke, Vice President
Vincent R. Giordano, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Jerry Weiss, Secretary
Custodian
National Westminster Bank NJ
Exchange Place Centre
10 Exchange Place
Jersey City, New Jersey 07302
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
<PAGE>
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders, Merrill Lynch North Carolina
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
North Carolina Municipal Bond Fund of Merrill Lynch Multi-State
Municipal Series Trust as of July 31, 1994, the related statements
of operations for the year then ended and changes in net assets for
the year then ended and for the period September 25, 1992
(commencement of operations) to July 31, 1993 and the financial
highlights for the year then ended and for the period September 25,
1992 (commencement of operations) to July 31, 1993. 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,
1994 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Merrill Lynch North Carolina Municipal Bond Fund of Merrill Lynch
Multi-State Municipal Series Trust as of July 31, 1994, the results
of its operations, the changes in its net assets, and the financial
highlights for the respective stated periods in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
August 29, 1994
</AUDIT-REPORT>
<PAGE>
IMPORTANT TAX INFORMATION
All of the net investment income distributions paid monthly by
Merrill Lynch North Carolina Municipal Bond Fund during its taxable
year ended July 31, 1994 qualify as tax-exempt interest dividends
for Federal income tax purposes.
Additionally, the Fund distributed short-term capital gains of
$.064199 per share to shareholders of record on December 22, 1993.
There were no long-term capital gains distributed by the Fund during
the year.
Please retain this information for your records.
APPENDIX GRAPHIC AND IMAGE MATERIAL.
ITEM 1:
APPENDIX: GRAPHIC AND IMAGE MATERIAL.
Item 1:
Total Return Based on a $10,000 Investment--Class A Shares*
A line graph depicting the growth of an investment in the Fund's
Class A Shares compared to growth of an investment in the Lehman
Brothers Municipal Bond Index. Beginning and ending values are:
<PAGE>
9/25/92** 7/94
ML North Carolina Municipal
Bond Fund++ $ 9,600 $10,825
Lehman Brothers Municipal
Bond Index++++ $10,000 $11,124
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses including advisory fees.
**Commencement of Operations.
++ML North Carolina Municipal Bond Fund invests primarily in
long-term investment-grade obligations issued by or on behalf of
the State of North Carolina, its political subdivisions,
agencies and instrumentalities and obligations of other
qualifying issuers.
++++This unmanaged Index consists of long-term revenue bonds,
prerefunded bonds, general obligation bonds and insured bonds.
<PAGE>
Item 2:
Total Return Based on a $10,000 Investment--Class B Shares*
A line graph depicting the growth of an investment in the Fund's
Class B Shares compared to growth of an investment in the Lehman
Brothers Municipal Bond Index. Beginning and ending values are:
9/25/92** 7/94
ML North Carolina Municipal
Bond Fund++ $10,000 $10,873
Lehman Brothers Municipal
Bond Index++++ $10,000 $11,124
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses including advisory fees.
**Commencement of Operations.
++ML North Carolina Municipal Bond Fund invests primarily in
long-term investment-grade obligations issued by or on behalf of
the State of North Carolina, its political subdivisions,
agencies and instrumentalities and obligations of other
qualifying issuers.
++++This unmanaged Index consists of long-term revenue bonds,
prerefunded bonds, general obligation bonds and insured bonds.
