MERRILL LYNCH
NORTH CAROLINA
MUNICIPAL
BOND FUND
FUND LOGO
Annual Report
July 31, 1996
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.
<PAGE>
Merrill Lynch North Carolina
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, NJ
08543-9011
TO OUR SHAREHOLDERS
The Municipal Market Environment
Municipal bond yields rose dramatically during the six-month period
ended July 31, 1996. Investors became increasingly alarmed that
earlier forecasts of continued moderate growth were overly
optimistic. As indications of stronger growth were released,
particularly the strong employment reports released beginning in
March, fears of associated inflationary pressures mounted and yields
rose in response. By May and June, long-term municipal bond yields
rose into the 6.25%--6.30% range.
However, in early July the combination of the Federal Reserve Board
suggesting that growth was expected to slow later in 1996 and a
temporary stock market correction allowed municipal bond yields to
fall as investors scrambled to purchase relatively scarce
securities. As measured by the Bond Buyer Revenue Bond Index, long-
term, A-rated uninsured tax-exempt bonds yielded 6.02% at July 31,
1996, an increase of over 30 basis points (0.30%) in the last six
months. Long-term US Treasury bond yields rose significantly over
the same period. By July 31, 1996, yields on US Treasury bonds
increased almost 100 basis points to end the six-month period at
6.97%.
<PAGE>
The municipal bond market's recent outperformance as compared to its
taxable counterpart was largely the result of two principal factors.
First, much of the concern in the tax-exempt market regarding the
potential loss of the inherent tax-advantage of the municipal bonds
dissipated. For much of 1995, various tax proposals, such as the
flat tax or national sales tax, were put forward either to reduce
the national debt or reform the current tax system. Most of these
proposals would have severely limited the tax advantages enjoyed by
the municipal bond market. However, in February 1996, the Kemp
Commission released its findings regarding various tax reform
proposals. While noting that numerous changes should be made, no
mention of curtailing or stopping municipal bonds' current favored
tax status was made.
The second major factor leading to the municipal bond market's
recent outperformance was the return of a more favorable technical
environment. The rate of increase in new bond issuance recently
slowed. Over the last 12 months, approximately $175 billion in long-
term municipal securities were issued, an increase of over 27% as
compared to the same period a year earlier. Much of this increase
was the result of issuers seeking to refinance their existing higher-
couponed debt as interest rates declined in 1995 and early 1996. As
interest rates rose, these financings became increasingly
economically impractical and issuance declined. Over the last six
months, less than $70 billion in long-term tax-exempt securities
were underwritten, an increase of 20% versus the comparable period a
year earlier. Only $43 billion in tax-exempt securities were issued
in the last three months, a total essentially unchanged from the
comparable quarter in 1995. In July 1996, less than $10 billion in
long-term municipal bonds were issued, representing the lowest
issuance for the month of July since 1990.
At the same time investor demand remained consistently strong. With
nominal new-issue yields above 6%, retail investor interest was
steady. Additionally, investors received over $50 billion this June
and July in assets derived from coupon income, bond maturities and
proceeds from early redemptions. Annual new bond issuance has
declined in recent years and is expected to remain below levels seen
in the early 1990s. Consequently, as the higher-coupon bonds issued
in the early-to-mid 1980s were redeemed at their first optional call
dates, the total number of outstanding tax-exempt bonds has
declined. This combination of a declining net supply and significant
amounts of assets helped maintain investor demand in recent months.
<PAGE>
It is unlikely that the municipal bond market will continue to
significantly outperform US Treasury securities in the near future.
The tax-exempt bond market's recent performance led to the yield
ratio between long-term taxable and tax-exempt securities falling
from in excess of 90% to approximately 85%. While historically still
very attractive, some institutional investors, particularly short-
term traders, began to view the tax-exempt bond market's recent
outperformance as an opportunity to sell a relatively expensive
asset. However, to the long-term investor, such a sale would
represent the loss of an attractively priced asset which may not be
easily replaced given the relative scarcity of municipal bonds under
present supply conditions.
Looking ahead, no clear consensus for the direction of interest
rates currently exists. Perhaps, the primary focus going forward
will be the extent to which the increase in interest rates seen thus
far in 1996 will negatively impact future economic growth. Should
growth slow in the interest rate-sensitive sectors of the economy,
like housing, auto, and consumer spending, as many economists assert
is likely, then bond yields are likely to decline. Under such a
scenario, the municipal bond market's performance is likely to
closely mirror that of the US Treasury bond market.
Fiscal Year in Review
During the year ended July 31, 1996, we slowly shifted away from the
neutral posture we adopted for the Fund in late 1995 and early 1996
toward a more defensive structuring. This shift largely involved the
sale of interest rate-sensitive issues and the corresponding
purchase of higher-couponed, more income-oriented securities. We
increased the Fund's cash reserve position at times to help preserve
the Fund's principal valuation during periods of significant
interest rate volatility. However, we were reluctant to raise
significant cash reserves or to maintain these reserves for an
extended period of time. While tax-exempt interest rates generally
rose over the past six months, there were a number of episodes of
declining interest rates. Continuously held large cash reserves
would impede the Fund from recouping the short-term price
appreciation associated with these episodes. More important, raising
large cash reserves would have a significant negative impact on the
Fund's yields.
New-issue supply in North Carolina was similar to national issuance
over the past six months. Over $1.8 billion in long-term municipal
securities were issued by North Carolina municipalities during the
six months ended July 31, 1996. However, much of this issuance was
concentrated in a few larger issues which inhibited the Fund's
ability to diversify its holdings somewhat. Additionally, given the
strong investor demand as we noted, much of the North Carolina new
bond issuance was structured in favor of individual retail
investors. The resultant current coupon issues were unattractive
given the Fund's current defensive strategy. The Fund's present
strategy, as well as the more aggressive posture it maintained in
late 1995 and early 1996, benefited its total returns for the fiscal
year. Despite its present higher-than-normal cash reserve position,
the Fund continued to provide its shareholders with attractive
yields for the 12 months ended July 31, 1996.
<PAGE>
Looking ahead for the remainder of 1996, we expect to maintain the
Fund's present defensive posture until a clearer consensus regarding
the near-term direction of interest rates can be established. This
strategy may result in some potential limiting of capital appreciation
should tax-exempt bond yields fall suddenly and dramatically.
However, the Fund's present structure should enable it to better
preserve much of its principal valuation and maintain its attractive
current dividends should municipal bond yields either remain stable
or resume their decline.
In Conclusion
We appreciate your ongoing interest in Merrill Lynch North Carolina
Municipal Bond Fund, and we look forward to serving your investment
needs and objectives in the months and years to come.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Fred K. Stuebe)
Fred K. Stuebe
Vice President and Portfolio Manager
<PAGE>
September 10, 1996
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* 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.
* 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.)
* 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.
* Class D Shares incur a maximum initial sales charge of 4% and an
account maintenance fee of 0.10% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Dividends paid to each class
of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
<PAGE>
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month
7/31/96 4/30/96 7/31/95 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $10.36 $10.25 $10.29 +0.68% +1.07%
Class B Shares* 10.36 10.25 10.29 +0.68 +1.07
Class C Shares* 10.36 10.25 10.28 +0.78 +1.07
Class D Shares* 10.37 10.26 10.29 +0.78 +1.07
Class A Shares--Total Return* +5.76(1) +2.31(2)
Class B Shares--Total Return* +5.21(3) +2.17(4)
Class C Shares--Total Return* +5.20(5) +2.15(6)
Class D Shares--Total Return* +5.75(7) +2.28(8)
Class A Shares--Standardized 30-day Yield 4.64%
Class B Shares--Standardized 30-day Yield 4.33%
Class C Shares--Standardized 30-day Yield 4.23%
Class D Shares--Standardized 30-day Yield 4.55%
<FN>
*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 $0.513 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.124 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.460 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.111 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.449 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.108 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.502 per share ordinary
income dividends.
(8)Percent change includes reinvestment of $0.121 per share ordinary
income dividends.
</TABLE>
PERFORMANCE DATA (continued)
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:
9/25/92** 7/96
<PAGE>
ML North Carolina Municipal Bond Fund++--
Class A Shares* $ 9,600 $12,204
ML North Carolina Municipal Bond Fund++--
Class B Shares* $10,000 $12,368
Lehman Brothers Municipal Bond
Index++++ $10,000 $12,792
Total Return Based on a $10,000 Investment--Class C Shares and Class D Shares
A line depicting the growth of an investment in the Fund's Class C
Shares 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** 7/96
ML North Carolina Municipal Bond Fund++--
Class C Shares* $10,000 $11,454
ML North Carolina Municipal Bond Fund++--
Class D Shares* $ 9,600 $11,105
Lehman Brothers Municipal Bond
Index++++ $10,000 $11,840
[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.
Past performance is not predictive of future performance.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/96 +5.44% +1.22%
Inception (9/25/92)
through 6/30/96 +6.30 +5.16
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
<PAGE>
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/96 +4.90% +0.90%
Inception (9/25/92)
through 6/30/96 +5.77 +5.54
[FN]
*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 6/30/96 +4.79% +3.79%
Inception (10/21/94)
through 6/30/96 +7.75 +7.75
[FN]
*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 6/30/96 +5.23% +1.02%
Inception (10/21/94)
through 6/30/96 +8.29 +5.71
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
PERFORMANCE DATA (concluded)
<PAGE>
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <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
1994 10.90 9.63 -- 0.540 - 6.78
1995 9.63 10.78 -- 0.535 +17.88
1/1/96--7/31/96 10.78 10.36 -- 0.281 - 1.15
------
Total $2.110
Cumulative total return as of 7/31/96: +27.12%**
</TABLE>
<TABLE>
Performance Summary--Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change***
<S> <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
1994 10.90 9.63 -- 0.490 - 7.25
1995 9.63 10.78 -- 0.483 +17.29
1/1/96--7/31/96 10.78 10.36 -- 0.252 - 1.45
------
Total $1.911
Cumulative total return as of 7/31/96: +24.68%***
</TABLE>
<TABLE>
Performance Summary--Class C Shares
<CAPTION>
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 $ 9.80 $ 9.63 -- $0.094 - 0.76%
1995 9.63 10.78 -- 0.473 +17.17
1/1/96--7/31/96 10.78 10.36 -- 0.246 - 1.50
------
Total $0.813
Cumulative total return as of 7/31/96: +14.54%***
</TABLE>
<PAGE>
<TABLE>
Performance Summary--Class D Shares
<CAPTION>
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 $ 9.80 $ 9.63 -- $0.103 - 0.66%
1995 9.63 10.78 -- 0.525 +17.76
1/1/96--7/31/96 10.78 10.37 -- 0.276 - 1.12
------
Total $0.904
Cumulative total return as of 7/31/96: +15.68%**
<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.
***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>
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 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
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--93.9%
<S> <S> <C> <S> <C>
AAA Aaa $ 3,000 Charlotte, North Carolina, COP, Refunding (Convention Facility Project),
Series C, 5.25% due 12/01/2020 (b) $ 2,779
AAA Aaa 1,200 Charlotte, North Carolina, Public Improvement Bonds, UT, 5.30% due 4/01/2004 1,246
AAA Aaa 500 Charlotte, North Carolina, Refunding, GO, UT, 5% due 2/01/2012 481
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 517
AAA Aaa 1,000 Cumberland County, North Carolina, COP (Civic Center Project), Series A,
6.40% due 12/01/2024 (b) 1,048
AA- A1 1,000 Greensboro, North Carolina, Enterprise System Revenue Bonds, Series A,
5.375% due 6/01/2019 931
AAA Aaa 1,000 Greensboro, North Carolina, Public Improvement Bonds, UT, 6.30% due
3/01/2002 (g) 1,095
NR* Baa1 1,500 Haywood County, North Carolina, Industrial Facilities and Pollution Control
Financing Authority, Environmental Improvement Revenue Bonds
(Champion International Corporation Project), AMT, 6.25% due 9/01/2025 1,480
A A2 3,500 Martin County, North Carolina, Industrial Facilities and Pollution Control
Financing Authority Revenue Bonds (Solid Waste Disposal-Weyerhaeuser Company),
AMT, 6.80% due 5/01/2024 3,733
AAA Aaa 1,500 Mecklenburg County, North Carolina, Public Improvement Bonds, Series A and B,
UT, 6.20% due 4/01/2001 (g) 1,629
BBB+ Aaa 3,055 North Carolina Eastern Municipal Power Agency, Power System Revenue
Refunding Bonds, Series A, 6.50% due 1/01/2018 (f) 3,383
North Carolina Educational Facilities, Finance Agency Revenue Bonds:
AA+ Aa1 2,000 (Duke University Project), Series C, 6.75% due 10/01/2021 2,178
AAA NR* 900 Refunding (Elon College Project), 6.375% due 1/01/2007 (e) 959
A1+ NR* 1,800 Refunding (Guilford College Project), VRDN, 3.60% due 9/01/2023 (a) 1,800
North Carolina HFA, Revenue Bonds:
AA Aa 2,750 AMT, Series V, 6.80% due 9/01/2025 2,827
AA Aa 1,340 Refunding, Series F, 6.60% due 7/01/2017 (h) 1,391
AA Aa 665 Series U, 6.70% due 3/01/2018 691
<PAGE>
North Carolina HFA, S/F Revenue Bonds:
AA Aaa 1,755 AMT, Series X, 6.70% due 9/01/2026 1,801
AA Aaa 1,940 Series W, 6.50% due 3/01/2018 1,990
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
North Carolina (concluded)
<S> <S> <C> <S> <C>
North Carolina Medical Care Commission, Hospital Revenue Bonds:
AAA Aaa $ 2,000 (Moore Regional Hospital Project), 5% due 10/01/2018 (b) $ 1,795
A+ A1 1,000 (Rex Hospital Project), 6.25% due 6/01/2017 1,017
AAA Aaa 1,620 (Wilson Memorial Hospital Project), 6.50% due 11/01/2020 (b) 1,712
AAA Aaa 2,500 North Carolina Municipal Power Agency, Revenue Refunding Bonds
(Catawba Electric Project Number 1), Series A, 5.375% due 1/01/2020 (b) 2,371
NR* A 2,375 North Carolina State Educational Assistance Authority Revenue Bonds
(Guaranteed Student Loan), Series C, Sub-lien, 6.35% due 7/01/2016 2,405
AA Aa 1,500 Orange County, North Carolina, Water and Sewer Authority, Revenue
Refunding Bonds, 5.20% due 7/01/2016 1,435
AAA Aaa 1,120 Pasquotank County, North Carolina, COP (Public Schools Project), 5% due
6/01/2015 (c) 1,032
NR* VMIG1++ 3,800 Person County, North Carolina, Industrial Facilities and Pollution
Control Financing Authority, Solid Waste Disposal Revenue Bonds (Carolina
Power and Light Company), AMT, DATES, 3.80% due 11/01/2016 (a) 3,800
AA- Aa 1,000 Pitt County, North Carolina, Revenue Refunding Bonds (Pitt County Memorial
Hospital), 5.25% due 12/01/2021 919
Raleigh-Durham, North Carolina, Airport Authority, Special Facility Revenue
Refunding Bonds (American Airlines), VRDN, Series A (a):
A1+ NR* 100 3.60% due 11/01/2005 100
A1+ NR* 1,000 3.60% due 11/01/2015 1,000
A- A 1,000 Shelby, North Carolina, Combined Enterprise System, Revenue Refunding Bonds,
Series B, 5.50% due 5/01/2017 957
A- A 700 Shelby, North Carolina, Combined Producing Facilities System Revenue Bonds
(Capital Improvement), 6.625% due 6/01/2002 (d)(g) 778
<PAGE>
AAA Aaa 1,000 Union County, North Carolina, Enterprise System Revenue Bonds, 5.50% due
6/01/2021 (c) 963
University of North Carolina, Chapel Hill, Hospital Revenue Bonds:
AA Aa 2,500 5.25% due 2/15/2026 2,303
AA Aa 800 (Board of Governors), 6.375% due 2/15/2017 825
Puerto Rico--5.0%
AAA NR* 700 Puerto Rico Commonwealth, Public Improvement Bonds, UT, Series A, 6.50% due
7/01/1999 (g) 744
AA Aa3 2,000 Puerto Rico Industrial, Medical and Environmental Pollution Control
Facilities, Financing Authority Revenue Bonds (Motorola Inc. Project),
Series A, 6.75% due 1/01/2014 2,188
Total Investments (Cost--$56,067)--98.9% 58,303
Other Assets Less Liabilities--1.1% 628
-------
Net Assets--100.0% $58,931
=======
<FN>
(a)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at July 31, 1996.
(b)AMBAC Insured.
(c)MBIA Insured.
(d)Bank Qualified.
(e)Insured by Connie Lee.
(f)Escrowed to maturity.
(g)Prerefunded.
(h)FHA Insured.
*Not Rated.
++Highest short-term rating by Moody's Investors Service, Inc.
Ratings shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<PAGE>
<TABLE>
Statement of Assets and Liabilities as of July 31, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$56,067,040) (Note 1a) $ 58,303,436
Cash 14,759
Receivables:
Interest $ 786,993
Beneficial interest sold 35,088 822,081
------------
Deferred organization expenses (Note 1e) 11,835
Prepaid registration fees and other assets (Note 1e) 1,152
------------
Total assets 59,153,263
------------
Liabilities: Payables:
Dividends to shareholders (Note 1f) 64,467
Beneficial interest redeemed 26,832
Investment adviser (Note 2) 22,410
Distributor (Note 2) 21,034 134,743
------------
Accrued expenses and other liabilities 87,618
------------
Total liabilities 222,361
------------
Net Assets: Net assets $ 58,930,902
============
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited
Consist of: number of shares authorized $ 77,620
Class B Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized 455,780
Class C Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized 17,104
Class D Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized 18,135
Paid-in capital in excess of par 58,489,412
Accumulated realized capital losses on investments--net (Note 5) (2,006,100)
Accumulated distribution in excess of realized capital gains--net (Note 1f) (357,445)
Unrealized appreciation on investments--net 2,236,396
------------
Net assets $ 58,930,902
============
Net Asset Value: Class A--Based on net assets of $8,043,119 and 776,196 shares
of beneficial interest outstanding $ 10.36
============
Class B--Based on net assets of $47,235,843 and 4,557,797 shares
of beneficial interest outstanding $ 10.36
============
Class C--Based on net assets of $1,772,189 and 171,041 shares
of beneficial interest outstanding $ 10.36
============
Class D--Based on net assets of $1,879,751 and 181,353 shares
of beneficial interest outstanding $ 10.37
============
<PAGE>
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION> For the Year Ended
July 31, 1996
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 3,484,486
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 337,198
Account maintenance and distribution fees--Class B (Note 2) 248,588
Professional fees 54,471
Accounting services (Note 2) 51,803
Printing and shareholder reports 39,746
Transfer agent fees--Class B (Note 2) 29,289
Amortization of organization expenses (Note 1e) 10,313
Account maintenance and distribution fees--Class C (Note 2) 8,131
Pricing fees 5,797
Custodian fees 5,133
Transfer agent fees--Class A (Note 2) 4,163
Trustees' fees and expenses 3,173
Registration fees (Note 1e) 2,121
Account maintenance fees--Class D (Note 2) 1,613
Transfer agent fees--Class C (Note 2) 789
Transfer agent fees--Class D (Note 2) 780
Other 12,469
------------
Total expenses before reimbursement 815,577
Reimbursement of expenses (Note 2) (90,848)
------------
Total expenses after reimbursement 724,729
------------
Investment income--net 2,759,757
------------
Realized & Realized loss on investments--net (418,368)
Unrealized Change in unrealized appreciation on investments--net 883,090
Gain (Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 3,224,479
(Notes 1b, 1d & 3): ============
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended July 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 2,759,757 $ 3,016,993
Realized loss on investments--net (418,368) (919,952)
Change in unrealized appreciation on investments--net 883,090 1,391,157
------------ ------------
Net increase in net assets resulting from operations 3,224,479 3,488,198
Dividends to Investment income--net:
Shareholders Class A (425,644) (541,099)
(Note 1f): Class B (2,197,971) (2,428,396)
Class C (58,322) (11,006)
Class D (77,820) (36,492)
------------ ------------
Net decrease in net assets resulting from dividends to
shareholders (2,759,757) (3,016,993)
------------ ------------
Beneficial Interest Net decrease in net assets derived from
Transactions beneficial interest transactions (2,857,107) (883,695)
(Note 4): ------------ ------------
Net Assets: Total decrease in net assets (2,392,385) (412,490)
Beginning of year 61,323,287 61,735,777
------------ ------------
End of year $ 58,930,902 $ 61,323,287
============ ============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<PAGE>
<TABLE>
Financial Highlights
<CAPTION>
Class A
For the
Period
The following per share data and ratios have been derived Sept. 25,
from information provided in the financial statements. 1992++ to
For the Year Ended July 31, July 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.29 $ 10.19 $ 10.67 $ 10.00
Operating -------- -------- -------- --------
Performance: Investment income--net .51 .54 .54 .46
Realized and unrealized gain (loss) on
investments--net .07 .10 (.42) .67
-------- -------- -------- --------
Total from investment operations .58 .64 .12 1.13
-------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.51) (.54) (.54) (.46)
In excess of realized gain on investments--net -- -- (.06) --
-------- -------- -------- --------
Total dividends and distributions (.51) (.54) (.60) (.46)
-------- -------- -------- --------
Net asset value, end of period $ 10.36 $ 10.29 $ 10.19 $ 10.67
======== ======== ======== ========
Total Investment Based on net asset value per share 5.76% 6.60% 1.11% 11.52%+++
Return:** ======== ======== ======== ========
Ratios to Expenses, net of reimbursement .75% .71% .50% .20%*
Average ======== ======== ======== ========
Net Assets: Expenses .90% .93% .96% 1.15%*
======== ======== ======== ========
Investment income--net 4.92% 5.43% 5.14% 5.26%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 8,043 $ 9,256 $ 11,071 $ 9,311
Data: ======== ======== ======== ========
Portfolio turnover 90.22% 52.33% 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 (continued)
<PAGE>
<TABLE>
Financial Highlights (continued)
<CAPTION>
Class B
For the
Period
The following per share data and ratios have been derived Sept. 25,
from information provided in the financial statements. 1992++ to
For the Year Ended July 31, July 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.29 $ 10.19 $ 10.67 $ 10.00
Operating -------- -------- -------- --------
Performance: Investment income--net .46 .49 .49 .41
Realized and unrealized gain (loss) on
investments--net .07 .10 (.42) .67
-------- -------- -------- --------
Total from investment operations .53 .59 .07 1.08
-------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.46) (.49) (.49) (.41)
In excess of realized gain on investments--net -- -- (.06) --
-------- -------- -------- --------
Total dividends and distributions (.46) (.49) (.55) (.41)
-------- -------- -------- --------
Net asset value, end of period $ 10.36 $ 10.29 $ 10.19 $ 10.67
======== ======== ======== ========
Total Investment Based on net asset value per share 5.21% 6.06% .60% 11.06%+++
Return:** ======== ======== ======== ========
Ratios to Expenses, net of reimbursement 1.26% 1.22% 1.01% .70%*
Average ======== ======== ======== ========
Net Assets: Expenses 1.41% 1.44% 1.46% 1.67%*
======== ======== ======== ========
Investment income--net 4.41% 4.91% 4.64% 4.77%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 47,236 $ 49,978 $ 50,664 $ 39,970
Data: ======== ======== ======== ========
Portfolio turnover 90.22% 52.33% 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>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class C Class D
For For the For For the
the Period 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,
Increase (Decrease) in Net Asset Value: 1996 1995 1996 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.28 $ 9.80 $ 10.29 $ 9.80
Operating -------- -------- -------- --------
Performance: Investment income--net .45 .37 .50 .41
Realized and unrealized gain on investments--net .08 .48 .08 .49
-------- -------- -------- --------
Total from investment operations .53 .85 .58 .90
-------- -------- -------- --------
Less dividends from investment income--net (.45) (.37) (.50) (.41)
-------- -------- -------- --------
Net asset value, end of period $ 10.36 $ 10.28 $ 10.37 $ 10.29
======== ======== ======== ========
Total Investment Based on net asset value per share 5.20% 8.87%+++ 5.75% 9.39%+++
Return:** ======== ======== ======== ========
Ratios to Expenses, net of reimbursement 1.37% 1.37%* .85% .85%*
Average ======== ======== ======== ========
Net Assets: Expenses 1.51% 1.57%* 1.00% 1.05%*
======== ======== ======== ========
Investment income--net 4.29% 4.67%* 4.81% 5.28%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 1,772 $ 713 $ 1,880 $ 1,377
Data: ======== ======== ======== ========
Portfolio turnover 90.22% 52.33% 90.22% 52.33%
======== ======== ======== ========
<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 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.
<PAGE>
* 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. Distrubutions in
excess of realized capital gains are due primarily to differing
tax treatments for futures transactions and post-October losses.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
<PAGE>
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee based upon the average daily
value of the Fund's net assets at the following annual rates: 0.55%
of the Fund's average daily net assets not exceeding $500 million;
0.525% of average daily net assets in excess of $500 million but not
exceeding $1 billion; and 0.50% of average daily net assets in
excess of $1 billion. For the year ended July 31, 1996, FAM earned
fees of $337,198, of which $90,848 was voluntarily waived.
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, 1996, 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 $547 $5,071
Class D $572 $5,358
For the year ended July 31, 1996, MLPF&S received contingent
deferred sales charges of $99,445 and $931 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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
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, MLPF&S, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended July 31, 1996 were $52,248,400 and $65,288,118,
respectively.
Net realized and unrealized gains (losses) as of July 31, 1996 were
as follows:
Realized Unrealized
Losses Gains
Long-term investments $ (179,519) $ 2,236,396
Financial futures contracts (238,849) --
------------ ------------
Total $ (418,368) $ 2,236,396
============ ============
As of July 31, 1996, net unrealized appreciation for Federal income
tax purposes aggregated $2,236,396, of which $2,295,390 related to
appreciated securities and $58,994 related to depreciated
securities. The aggregate cost of investments at July 31, 1996 for
Federal income tax purposes was $56,067,040.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest
transactions was $2,857,107 and $883,695 for the years ended July
31, 1996 and July 31, 1995, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 58,755 $ 612,296
Shares issued to share-
holders in reinvestment
of dividends 21,168 221,122
------------ ------------
Total issued 79,923 833,418
Shares redeemed (203,627) (2,141,307)
------------ ------------
Net decrease (123,704) $ (1,307,889)
============ ============
<PAGE>
Class A Shares for the Year Dollar
Ended July 31, 1995 Shares Amount
Shares sold 84,037 $ 841,960
Shares issued to share-
holders in reinvestment
of dividends 28,877 288,342
------------ ------------
Total issued 112,914 1,130,302
Shares redeemed (299,936) (2,960,930)
------------ ------------
Net decrease (187,022) $ (1,830,628)
============ ============
Class B Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 538,507 $ 5,640,207
Shares issued to share-
holders in reinvestment
of dividends 104,530 1,092,438
------------ ------------
Total issued 643,037 6,732,645
Automatic conversion
of shares (26,183) (268,153)
Shares redeemed (917,172) (9,576,731)
------------ ------------
Net decrease (300,318) $ (3,112,239)
============ ============
Class B Shares for the Year Dollar
Ended July 31, 1995 Shares Amount
Shares sold 881,166 $ 8,833,126
Shares issued to share-
holders in reinvestment
of dividends 120,152 1,200,171
------------ ------------
Total issued 1,001,318 10,033,297
Automatic conversion
of shares (102) (1,063)
Shares redeemed (1,116,312) (11,088,915)
------------ ------------
Net decrease (115,096) $ (1,056,681)
============ ============
<PAGE>
Class C Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 119,097 $ 1,249,580
Shares issued to share-
holders in reinvestment
of dividends 1,766 18,424
------------ ------------
Total issued 120,863 1,268,004
Shares redeemed (19,138) (201,506)
------------ ------------
Net increase 101,725 $ 1,066,498
============ ============
Class C Shares for the Period
October 21, 1994++ to Dollar
July 31, 1995 Shares Amount
Shares sold 80,718 $ 831,926
Shares issued to share-
holders in reinvestment
of dividends 590 6,034
------------ ------------
Total issued 81,308 837,960
Shares redeemed (11,992) (123,319)
------------ ------------
Net increase 69,316 $ 714,641
============ ============
[FN]
++Commencement of Operations.
Class D Shares for Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 41,562 $ 439,067
Shares issued to share-
holders in reinvestment
of dividends 2,314 24,132
Automatic conversion
of shares 26,183 268,153
------------ ------------
Total issued 70,059 731,352
Shares redeemed (22,465) (234,829)
------------ ------------
Net increase 47,594 $ 496,523
============ ============
<PAGE>
Class D Shares for the Period
October 21, 1994++ to Dollar
July 31, 1995 Shares Amount
Shares sold 136,785 $ 1,320,711
Shares issued to share-
holders in reinvestment
of dividends 3,016 30,556
Automatic conversion
of shares 102 1,063
------------ ------------
Total issued 139,903 1,352,330
Shares redeemed (6,144) (63,357)
------------ ------------
Net increase 133,759 $ 1,288,973
============ ============
[FN]
++Commencement of Operations.
5. Capital Loss Carryforward:
At July 31, 1996, the Fund had a net capital loss carryforward of
approximately $1,678,000, of which $981,000 expires in 2003 and
$697,000 expires in 2004. This amount will be available to offset
like amounts of any future taxable gains.
<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, 1996, 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 three-year period
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.
<PAGE>
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,
1996 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, 1996, 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 10, 1996
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid monthly by
Merrill Lynch North Carolina Municipal Bond Fund during its taxable
year ended July 31, 1996 qualify as tax-exempt interest dividends
for Federal income tax purposes.
Additionally, there were no capital gains distributed by the Fund
during the year.
Please retain this information for your records.
<PAGE>
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
Fred K. Stuebe, Vice President
Gerald M. Richard, Treasurer
Jerry Weiss, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, Massachusetts 02101
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
