MERRILL LYNCH
NORTH CAROLINA
MUNICIPAL
BOND FUND
[FUND LOGO]
STRATEGIC
Performance
Semi-Annual Report
January 31, 1997
Officers and Trustees
Arthur Zeikel, President and Trustee
James H. Bodurtha, Trustee
Herbert I. London, Trustee
Robert R. Martin, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Terry K. Glenn, Executive Vice President
Vincent R. Giordano, Senior Vice President
Donald C. Burke, Vice President
Kenneth A. Jacob, Vice President
Robert D. Sneeden, Vice President
Gerald M. Richard, Treasurer
Jerry Weiss, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
This report is not authorized for use as an offer of sale
or a solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, maybe worth more or less than their original cost.
Statements and other information herein are as dated and are subject
to change.
Merrill Lynch North Carolina
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, NJ
08543-9011 #16401 -- 1/97
Merrill Lynch North Carolina Municipal Bond Fund January 31, 1997
TO OUR SHAREHOLDERS
The Municipal Market Environment
Long-term fixed-income bond yields generally declined over the six
months ended January 31, 1997. Initially, US Treasury bond yields
declined over 45 basis points (0.45%) to 6.45% by late November as
low employment growth and continued low inflation combined to
support lower bond yields. Concurrently, long-term municipal revenue
bond yields, as measured by the Bond Buyer Revenue Bond Index,
declined over 20 basis points to approximately 5.80%. However, signs
of increased economic activity and renewed inflation fears pushed
bond yields up for the remainder of the period. By the end of
January 1997, US Treasury bond yields rose 35 basis points
to end the period at approximately 6.80%. Similarly, long-term
municipal revenue bond yields rose approximately 20 basis points
from their lows in late November to approximately 6.00%. During the
six months ended January 31, 1997, US Treasury bond yields declined
approximately 10 basis points, while tax-exempt bond yields were
essentially unchanged.
Recently, tax-exempt bond yields underperformed their taxable
counterparts despite a continued strong supply position. During the
six-month period ended January 31, 1997, over $88 billion in long-
term tax-exempt bonds was underwritten, essentially unchanged from
issuance a year ago. Approximately $50 billion in new municipal
bonds was issued during the three-month period ended January 31,
1997, representing a decline of over 5% compared to the same period
in 1996. This declining trend in bond issuance was even more
apparent recently. Slightly more than $10 billion in long-term bonds
was issued in January 1997, a decrease of over 15% compared to
January 1996 issuance.
The municipal bond market's recent underperformance relative to
Treasury issues was the result of a number of other factors. The
historic strength of the US equity market has attracted significant
investor interest. Additionally, as tax-exempt bond yields declined
again below 6%, some investors temporarily lost interest in the
municipal bond market. If interest rates continue to decline as they
did at the end of 1994 and throughout 1995, investors, in general,
will quickly adjust to the new levels. The tax advantages generated
by municipal bonds quickly outweigh low nominal yields, and investor
demand increases.
The Presidential and Congressional elections this past November
resurrected some investor concerns regarding continued Federal
deficit reduction and potential legislative restrictions upon the
municipal bond market. This situation was similar to that at the
beginning of 1996 when tax-exempt bond yields were negatively
impacted by fears that legislation reducing the tax advantage of
municipal bonds would be introduced to aid further deficit
reductions.
However, the US Treasury bond market's recent relatively strong
performance resulted in municipal bonds becoming a particularly
attractive investment alternative. At current levels, long-term tax-
exempt revenue bonds yield over 88% of comparable US Treasury bond
yields. Current levels make tax-advantaged products more attractive
than they were at mid-year when yield ratios declined to
approximately 85%. For example, to an investor in the 36% Federal
income tax bracket, a current tax-exempt bond yield of 6% represents
a taxable equivalent yield of approximately 9.37%.
Looking forward, the supply of new bond issuance for 1997 is
expected to be very similar to that of 1996, with most annual
estimates falling in the $170 billion -- $175 billion range.
Investor demand is also expected to regain its former strength, with
1997 total municipal redemptions (refundings, maturities and coupon
payments) in the $175 billion -- $185 billion range. This overall
balance suggests that the positive technical backdrop the municipal
bond market enjoyed in 1996 could continue in 1997. However, it is
likely that seasonal factors may temporarily distort this overall
balanced technical scenario. During periods of reduced bond
issuance, the ease and ability to purchase tax-advantaged products
at their current attractive levels may be greatly restricted.
Portfolio Strategy
During the six-month period ended January 31, 1997, we primarily
maintained the defensive posture of the Fund which we adopted in
mid-1996. Our principal strategy was to favor higher-couponed issues
over more interest rate-sensitive securities that have greater
potential for capital appreciation. We believed that tax-exempt
interest rates would fluctuate in a broad range and larger-couponed
securities would offer both greater principal preservation and a
generous tax-exempt income. In addition, we maintained minimal cash
reserves in recent months to further augment shareholder income.
New-issue supply in North Carolina was similar to national issuance
during the six months ended January 31, 1997. Over $1.75 billion in
municipal bonds was issued by North Carolina municipalities during
the period, showing an increase over the same six-month period in
1996. Likewise, during the three months ended January 31, 1997, just
over $800 million in municipal bonds was issued in North Carolina,
which also was an increase compared to the same three-month period
in 1996. However, much of this new issuance was concentrated in a
few larger issues which slightly inhibited the Fund's ability to
diversify its holdings. This scenario was a major determining factor
in our decision to maintain a fully invested position.
We believe that economic growth should slow by mid-1997, perhaps
aided by an increase in interest rates by the Federal Reserve Board.
Slower growth, combined with continued low inflation, may result in
materially lower interest rates. Additionally, the prospect for
further Federal deficit reduction may provide a positive backdrop
for more significant declines in long-term bond yields. Signs that
such a scenario is developing would trigger us to move to a more
aggressive strategy for the Fund, utilizing more interest rate-
sensitive issues in order to enhance the Fund's capital appreciation
potential. At the same time, however, we will still seek to generate
an attractive level of tax-exempt income.
In Conclusion
We appreciate your ongoing interest in Merrill Lynch North Carolina
Municipal Bond Fund, and we look forward to serving your investment
needs in the months and years ahead.
Sincerely,
/S/ARTHUR ZEIKEL
Arthur Zeikel
President
/S/VINCENT R. GIORDANO
Vincent R. Giordano
Senior Vice President
/S/ROBERT D. SNEEDEN
Robert D. Sneeden
Portfolio Manager
March 10, 1997
We are pleased to announce that Robert D. Sneeden is responsible for
the day-to-day management of Merrill Lynch North Carolina Municipal
Bond Fund. Mr. Sneeden has been employed by Merrill Lynch Asset
Management, L.P. (an affiliate of the Fund's investment adviser)
since 1994 as Portfolio Manager. Prior thereto, he was Vice
President with Lehman Brothers from 1990 to 1994.
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select PricingSM System, which offers four pricing
alternatives:
(bullet) Class A Shares incur a maximum initial sales charge (front-
end load) of 4% and bear no ongoing distribution or account
maintenance fees. Class A Shares are available only to eligible
investors.
(bullet) Class B Shares are subject to a maximum contingent deferred
sales charge of 4% if redeemed during the first year, decreasing 1%
each year thereafter to 0% after the fourth year. In addition, Class
B Shares are subject to a distribution fee of 0.25% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after approximately 10 years. (There is no initial
sales charge for automatic share conversions.)
(bullet) Class C Shares are subject to a distribution fee of 0.35%
and an account maintenance fee of 0.25%. In addition, Class C Shares
are subject to a 1% contingent deferred sales charge if redeemed
within one year of purchase.
(bullet) Class D Shares incur a maximum initial sales charge of 4%
and an account maintenance fee of 0.10% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Dividends paid to each class
of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
<TABLE>
<CAPTION>
Recent Performance Results
12 Month 3 Month
1/31/97 10/31/96 1/31/96 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $10.46 $10.48 $10.77 -2.88% -0.19%
Class B Shares* 10.46 10.48 10.77 -2.88 -0.19
Class C Shares* 10.46 10.48 10.77 -2.88 -0.19
Class D Shares* 10.46 10.48 10.77 -2.88 -0.19
Class A Shares -- Total Return* +2.04(1) +1.10(2)
Class B Shares -- Total Return* +1.52(3) +0.96(4)
Class C Shares -- Total Return* +1.41(5) +0.94(6)
Class D Shares -- Total Return* +1.94(7) +1.07(8)
Class A Shares -- Standardized 30-day Yield 4.58%
Class B Shares -- Standardized 30-day Yield 4.26%
Class C Shares -- Standardized 30-day Yield 4.16%
Class D Shares -- Standardized 30-day Yield 4.48%
* 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 $0.519 per share ordinary income dividends.
(2) Percent change includes reinvestment of $0.140 per share ordinary income dividends.
(3) Percent change includes reinvestment of $0.465 per share ordinary income dividends.
(4) Percent change includes reinvestment of $0.126 per share ordinary income dividends.
(5) Percent change includes reinvestment of $0.454 per share ordinary income dividends.
(6) Percent change includes reinvestment of $0.123 per share ordinary income dividends.
(7) Percent change includes reinvestment of $0.509 per share ordinary income dividends.
(8) Percent change includes reinvestment of $0.138 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>
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
1996 10.78 10.51 -- 0.511 + 2.38
1/1/97 -- 1/31/97 10.51 10.46 -- 0.037 - 0.04
Total $2.377
Cumulative total return as of 1/31/97: +31.62%**
* Figures may include short-term capital gains distributions.
** Figures assume reinvestment of all dividends and capital gains distributions at net asset value on the payable
date, and do not include sales charge; results would be lower if sales charge was included.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class B Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
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
1996 10.78 10.51 -- 0.458 + 1.86
1/1/97 -- 1/31/97 10.51 10.46 -- 0.034 - 0.08
Total $2.151
Cumulative total return as of 1/31/97: +28.76%**
* Figures may include short-term capital gains distributions.
** Figures assume reinvestment of all dividends and capital gains distributions at net asset value on the payable
date, and do not reflect deduction of any sales charge; results would be lower if sales charge was deducted.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class C Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94 -- 12/31/94 $9.80 $9.63 -- $0.094 - 0.76%
1995 9.63 10.78 -- 0.473 +17.17
1996 10.78 10.51 -- 0.447 + 1.76
1/1/97 -- 1/31/97 10.51 10.46 -- 0.033 - 0.09
Total $1.047
Cumulative total return as of 1/31/97: +18.22%**
* Figures may include short-term capital gains distributions.
** Figures assume reinvestment of all dividends and capital gains distributions at net asset value on the payable
date, and do not reflect deduction of any sales charge; results would be lower if sales charge was deducted.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class D Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94 -- 12/31/94 $9.80 $9.63 -- $0.103 - 0.66%
1995 9.63 10.78 -- 0.525 +17.76
1996 10.78 10.51 -- 0.501 + 2.28
1/1/97 -- 1/31/97 10.51 10.46 -- 0.037 - 0.04
Total $1.166
Cumulative total return as of 1/31/97: +19.60%**
* Figures may include short-term capital gains distributions.
** Figures assume reinvestment of all dividends and capital gains distributions at net asset value on the payable
date, and do not include sales charge; results would be lower if sales charge was included.
</TABLE>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/96 +2.38% -1.72%
Inception (9/25/92)
through 12/31/96 +6.66 +5.65
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/96 +1.86% -2.04%
Inception (9/25/92)
through 12/31/96 +6.12 +6.12
* Maximum contingent deferred sales charge is 4% and is reduced
to 0% after 4 years.
** Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 12/31/96 +1.76% +0.78%
Inception (10/21/94)
through 12/31/96 +7.97 +7.97
* Maximum contingent deferred sales charge is 1% and is reduced
to 0% after 1 year.
** Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 12/31/96 +2.28% -1.81%
Inception (10/21/94)
through 12/31/96 +8.52 +6.52
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
<TABLE>
<CAPTION>
Merrill Lynch North Carolina Municipal Bond Fund January 31, 1997
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <C> <C> <C> <C>
North Carolina -- 94.7%
AAA Aaa $1,200 Charlotte, North Carolina, Public Improvement Bonds, UT, 5.30% due 4/01/2004 $1,250
AAA Aaa 500 Charlotte, North Carolina, Refunding, GO, UT, 5% due 2/01/2012 488
AAA Aaa 1,690 Charlotte, North Carolina, Water and Sewer, GO, UT, 5.50% due 5/01/2004 1,782
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 526
AAA Aaa 1,000 Cumberland County, North Carolina, COP (Civic Center Project), Series A, 6.40%
due 12/01/2024 (b) 1,068
AA- A1 1,000 Greensboro, North Carolina, Enterprise System Revenue Bonds, Series A, 5.37%
due 6/01/2019 954
AAA Aaa 1,000 Greensboro, North Carolina, Public Improvement Bonds, UT, 6.30% due 3/01/2002 (g) 1,099
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 1,516
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 3,785
BBB Aaa 3,055 North Carolina Eastern Municipal Power Agency, Power System Revenue Refunding
Bonds, Series A, 6.50% due 1/01/2018 (f) 3,477
North Carolina Educational Facilities, Finance Agency Revenue Bonds:
AA+ Aa1 2,000 (Duke University Project), Series C, 6.75% due 10/01/2021 2,173
AAA NR* 900 Refunding (Elon College Project), 6.37% due 1/01/2007 (e) 962
North Carolina HFA, Revenue Bonds:
AA Aa 2,720 AMT, Series V, 6.80% due 9/01/2025 2,812
AA Aa 1,340 Refunding, Series F, 6.60% due 7/01/2017 (d) 1,399
AA Aa 660 Series U, 6.70% due 3/01/2018 689
North Carolina HFA, S/F Revenue Bonds:
AA Aa 1,755 AMT, Series X, 6.70% due 9/01/2026 1,818
AA Aa 1,940 Series W, 6.50% due 3/01/2018 2,007
AA Aa3 2,500 North Carolina Medical Care Commission, Health Care Facilities Revenue Bonds
(Carolina Medicorp. Project), 5.25% due 5/01/2026 2,314
North Carolina Medical Care Commission, Hospital Revenue Bonds:
AA Aa3 1,500 (Duke University Hospital Project), Series C, 5.25% due 6/01/2021 1,402
AAA Aaa 2,000 (Moore Regional Hospital Project), 5% due 10/01/2018 (b) 1,806
A+ A1 1,000 (Rex Hospital Project), 6.25% due 6/01/2017 1,025
AAA Aaa 1,620 (Wilson Memorial Hospital Project), 6.50% due 11/01/2020 (b) 1,723
AAA Aaa 2,000 North Carolina Municipal Power Agency, Revenue Refunding Bonds (Catawba Electric
Project Number 1), Series A, 5.37% due 1/01/2020 (b) 1,915
NR* A 2,375 North Carolina State Educational Assistance Authority Revenue Bonds (Guaranteed
Student Loan), AMT, Series C, Sub-lien, 6.35% due 7/01/2016 2,410
AAA Aaa 1,000 North Carolina State, GO, 5.10% due 6/01/2006 1,025
AA Aa 1,500 Orange County, North Carolina, Water and Sewer Authority, Revenue Refunding Bonds,
5.20% due 7/01/2016 1,421
AAA Aaa 1,120 Pasquotank County, North Carolina, COP (Public Schools Project), 5% due 6/01/2015 (c) 1,056
NR* VMIG1+ 100 Person County, North Carolina, Industrial Facilities and Pollution Control Financing
Authority, Solid Waste Disposal Revenue Bonds (Carolina Power and Light Company),
AMT, DATES, 3.65% due 2/03/1997 (a) 100
AA- Aa3 2,000 Pitt County, North Carolina, Revenue Refunding Bonds (Pitt County Memorial Hospital),
5.25% due 12/01/2021 1,881
AA+ Aa 2,000 Raleigh, North Carolina, Combined Enterprise System Revenue Bonds, 5.12%
due 3/01/2022 1,858
Raleigh-Durham, North Carolina, Airport Authority, Special Facility Revenue Refunding
Bonds (American Airlines), VRDN (a):
A1+ NR* 800 Series A, 4.00% due 2/03/1997 800
A1+ NR* 900 Series B, 3.70% due 11/01/2015 (e) 900
A- A 700 Shelby, North Carolina, Combined Producing Facilities System Revenue Bonds (Capital
Improvement), 6.62% due 6/01/2002 (g) 783
AA Aa 800 University of North Carolina, Chapel Hill, Hospital Revenue Bonds (Board of Governors),
6.37% due 2/15/2017 839
Puerto Rico -- 4.0%
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 2,189
Total Investments (Cost -- $50,823) -- 98.7% 53,252
Other Assets Less Liabilities -- 1.3% 678
-------
Net Assets -- 100.0% $53,930
=======
(a) The interest rate is subject to change periodically based upon prevailing market rates.
The interest rate shown is the rate in effect at January 31, 1997.
(b) AMBAC Insured.
(c) MBIA Insured.
(d) FHA Insured.
(e) Insured by Connie Lee.
(f) Escrowed to maturity.
(g) Prerefunded.
* Not Rated.
+ Highest short-term rating by Moody's Investors Service, Inc.
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 Authority
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of January 31, 1997
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $50,822,821)(Note 1a) $53,252,185
Cash 89,055
Receivables:
Interest $756,509
Beneficial interest sold 19,501 776,010
--------------
Deferred organization expenses (Note 1e) 11,835
Prepaid expenses and other assets (Note 1e) 1,152
-------------
Total assets 54,130,237
-------------
Liabilities: Payables:
Beneficial interest redeemed 52,560
Dividends to shareholders (Note 1f) 40,787
Investment adviser (Note 2) 21,295
Distributor (Note 2) 19,998 134,640
-------------
Accrued expenses and other liabilities 66,079
-------------
Total liabilities 200,719
-------------
Net Assets: Net assets $53,929,518
=============
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited number of
Consist of: shares authorized $69,812
Class B Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 410,209
Class C Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 16,450
Class D Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 19,197
Paid-in capital in excess of par 52,991,336
Accumulated realized capital losses on investments -- net (Note 5) (1,649,405)
Accumulated distributions in excess of realized
capital gains -- net (Note 1f) (357,445)
Unrealized appreciation on investments -- net 2,429,364
-------------
Net assets $53,929,518
=============
Net Asset Value: Class A -- Based on net assets of $7,300,191 and 698,116 shares of
beneficial interest outstanding $10.46
=============
Class B -- Based on net assets of $42,901,442 and 4,102,087 shares of
beneficial interest outstanding $10.46
=============
Class C -- Based on net assets of $1,719,950 and 164,497 shares of
beneficial interest outstanding $10.46
=============
Class D -- Based on net assets of $2,007,935 and 191,966 shares of
beneficial interest outstanding $10.46
=============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Six Months Ended
January 31, 1997
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned $1,656,895
(Note 1d):
Expenses: Investment advisory fees (Note 2) $159,517
Account maintenance and distribution fees -- Class B (Note 2) 116,257
Professional fees 27,245
Accounting services (Note 2) 23,545
Printing and shareholder reports 17,842
Transfer agent fees -- Class B (Note 2) 13,825
Account maintenance and distribution fees -- Class C (Note 2) 5,398
Amortization of organization expenses (Note 1e) 5,207
Custodian fees 2,061
Transfer agent fees -- Class A (Note 2) 1,883
Pricing fees 1,490
Account maintenance fees -- Class D (Note 2) 1,003
Transfer agent fees -- Class C (Note 2) 534
Transfer agent fees -- Class D (Note 2) 492
------------
Total expenses before reimbursement 376,299
Reimbursement of expenses (Note 2) (29,003)
------------
Total expenses after reimbursement 347,296
------------
Investment income -- net 1,309,599
------------
Realized & Realized gain on investments -- net 356,696
Unrealized Gain on Change in unrealized appreciation on investments -- net 192,968
Investments -- Net ------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $1,859,263
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
Increase (Decrease) in Net Assets: Jan. 31, 1997 July 31, 1996
<S> <C> <C> <C>
Operations: Investment income -- net $1,309,599 $2,759,757
Realized gain (loss) on investments -- net 356,696 (418,368)
Change in unrealized appreciation on investments -- net 192,968 883,090
------------- -------------
Net increase in net assets resulting from operations 1,859,263 3,224,479
------------- -------------
Dividends to Investment income -- net:
Shareholders Class A (190,388) (425,644)
(Note 1f): Class B (1,031,561) (2,197,971)
Class C (39,026) (58,322)
Class D (48,624) (77,820)
------------- -------------
Net decrease in net assets resulting from dividends
to shareholders (1,309,599) (2,759,757)
------------- -------------
Beneficial Interest Net decrease in net assets derived from beneficial
Transactions interest transactions (5,551,048) (2,857,107)
(Note 4): ------------- -------------
Net Assets: Total decrease in net assets (5,001,384) (2,392,385)
Beginning of period 58,930,902 61,323,287
------------- -------------
End of period $53,929,518 $58,930,902
============= =============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Class A
For the For the
Six Period
The following per share data and ratios have been derived Months Sept. 25,
from information provided in the financial statements. Ended 1992+ to
Jan. 31, For the Year Ended July 31, July 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.36 $10.29 $10.19 $10.67 $10.00
Operating -------- -------- -------- -------- --------
Performance: Investment income -- net .26 .51 .54 .54 .46
Realized and unrealized gain (loss) on
investments -- net .10 .07 .10 (.42) .67
-------- -------- -------- -------- --------
Total from investment operations .36 .58 .64 .12 1.13
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income -- net (.26) (.51) (.54) (.54) (.46)
In excess of realized gain on
investments -- net -- -- -- (.06) --
-------- -------- -------- -------- --------
Total dividends and distributions (.26) (.51) (.54) (.60) (.46)
-------- -------- -------- -------- --------
Net asset value, end of period $10.46 $10.36 $10.29 $10.19 $10.67
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 3.54%++ 5.76% 6.60% 1.11% 11.52%++
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement .77%* .75% .71% .50% .20%*
Net Assets: ======== ======== ======== ======== ========
Expenses .87%* .90% .93% .96% 1.15%*
======== ======== ======== ======== ========
Investment income -- net 4.95%* 4.92% 5.43% 5.14% 5.26%*
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $7,300 $8,043 $9,256 $11,071 $9,311
Data: ======== ======== ======== ======== ========
Portfolio turnover 24.92% 90.22% 52.33% 74.35% 27.98%
======== ======== ======== ======== ========
* Annualized.
** Total investment returns exclude the effect of sales loads.
+ Commencement of Operations.
++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights (continued)
Class B
For the For the
Six Period
The following per share data and ratios have been derived Months Sept. 25,
from information provided in the financial statements. Ended 1992+ to
Jan. 31, For the Year Ended July 31, July 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.36 $10.29 $10.19 $10.67 $10.00
Operating -------- -------- -------- -------- --------
Performance: Investment income -- net .24 .46 .49 .49 .41
Realized and unrealized gain (loss) on
investments -- net .10 .07 .10 (.42) .67
-------- -------- -------- -------- --------
Total from investment operations .34 .53 .59 .07 1.08
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income -- net (.24) (.46) (.49) (.49) (.41)
In excess of realized gain on investments -- net -- -- -- (.06) --
-------- -------- -------- -------- --------
Total dividends and distributions (.24) (.46) (.49) (.55) (.41)
-------- -------- -------- -------- --------
Net asset value, end of period $10.46 $10.36 $10.29 $10.19 $10.67
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 3.27%++ 5.21% 6.06% .60% 11.06%++
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 1.28%* 1.26% 1.22% 1.01% .70%*
Net Assets: ======== ======== ======== ======== ========
Expenses 1.38%* 1.41% 1.44% 1.46% 1.67%*
======== ======== ======== ======== ========
Investment income -- net 4.44%* 4.41% 4.91% 4.64% 4.77%*
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $42,902 $47,236 $49,978 $50,664 $39,970
Data: ======== ======== ======== ======== ========
Portfolio turnover 24.92% 90.22% 52.33% 74.35% 27.98%
======== ======== ======== ======== ========
* Annualized.
** Total investment returns exclude the effect of sales loads.
+ Commencement of Operations.
++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights (concluded)
Class C
For the For the
Six For the Period
The following per share data and ratios have been derived Months Year Oct. 21,
from information provided in the financial statements. Ended Ended 1994+ to
Jan. 31, July 31, July 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995
<S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.36 $10.28 $9.80
Operating -------- -------- --------
Performance: Investment income-- net .23 .45 .37
Realized and unrealized gain on investments -- net .10 .08 .48
-------- -------- --------
Total from investment operations .33 .53 .85
-------- -------- --------
Less dividends from investment income -- net (.23) (.45) (.37)
-------- -------- --------
Net asset value, end of period $10.46 $10.36 $10.28
======== ======== ========
Total Investment Based on net asset value per share 3.22%++ 5.20% 8.87%++
Return:** ======== ======== ========
Ratios to Average Expenses, net of reimbursement 1.38%* 1.37% 1.37%*
Net Assets: ======== ======== ========
Expenses 1.48%* 1.51% 1.57%*
======== ======== ========
Investment income -- net 4.34%* 4.29% 4.67%*
======== ======== ========
Supplemental Net assets, end of period (in thousands) $1,720 $1,772 $713
Data: ======== ======== ========
Portfolio turnover 24.92% 90.22% 52.33%
======== ======== ========
<CAPTION>
Class D
For the For the
Six For the Period
The following per share data and ratios have been derived Months Year Oct. 21,
from information provided in the financial statements. Ended Ended 1994+ to
Jan. 31, July 31, July 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995
<S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.37 $10.29 $9.80
Operating -------- -------- --------
Performance: Investment income-- net .26 .50 .41
Realized and unrealized gain on investments -- net .09 .08 .49
-------- -------- --------
Total from investment operations .35 .58 .90
-------- -------- --------
Less dividends from investment income -- net .26 (.50) (.41)
-------- -------- --------
Net asset value, end of period $10.46 $10.37 $10.29
======== ======== ========
Total Investment Based on net asset value per share 3.39%++ 5.75% 9.39%++
Return:** ======== ======== ========
Ratios to Average Expenses, net of reimbursement .87%* .85% .85%*
Net Assets: ======== ======== ========
Expenses .97%* 1.00% 1.05%*
======== ======== ========
Investment income -- net 4.85%* 4.81% 5.28%*
======== ======== ========
Supplemental Net assets, end of period (in thousands) $2,008 $1,880 $1,377
Data: ======== ======== ========
Portfolio turnover 24.92% 90.22% 52.33%
======== ======== ========
* Annualized.
** Total investment returns exclude the effect of sales loads.
+ Commencement of Operations.
++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch North Carolina Municipal Bond Fund January 31, 1997
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. These unaudited
financial statements reflect all adjustments which are, in the opinion
of management, necessary to a fair statement of the results for the
interim period presented. All such adjustments are of a normal recurring
nature. The Fund offers four classes of shares under the Merrill Lynch
Select PricingSM System. Shares of Class A and Class D are sold with a
front-end sales charge. Shares of Class B and Class C may be subject to
a contingent deferred sales charge. All classes of shares have identical
voting, dividend, liquidation and other rights and the same terms and
conditions, except that Class B, Class C and Class D Shares bear certain
expenses related to the account maintenance of such shares, and Class B
and Class C Shares also bear certain expenses related to the
distribution of such shares. Each class has exclusive voting rights with
respect to matters relating to its account maintenance and distribution
expenditures. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments -- Municipal bonds and other portfolio
securities in which the Fund invests are traded primarily in the over-
the-counter municipal bond and money markets and are valued at the last
available bid price in the over-the-counter market or on the basis of
yield equivalents as obtained from one or more dealers that make markets
in the securities. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their settlement prices as
of the close of such exchanges. Short-term investments with remaining
maturities of sixty days or less are valued at amortized cost, which
approximates market value. Securities and assets for which market
quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of
Trustees of the Trust, including valuations furnished by a pricing
service retained by the Trust, which may utilize a matrix system for
valuations. The procedures of the pricing service and its valuations are
reviewed by the officers of the Trust under the general supervision of
the Trustees.
(b) Derivative financial instruments -- The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the counterparty
does not perform under the contract.
(bullet) Financial futures contracts -- The Fund may purchase or sell
interest rate futures contacts 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. Distributions in excess of realized
capital gains are due primarily to differing tax treatments for post-
October losses.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is Princeton
Services, Inc ("PSI"), an indirect wholly-owned subsidiary of Merrill
Lynch & Co., Inc. ("ML & Co."), which is the limited partner. The Fund
has also entered into a Distribution Agreement and Distribution Plans
with Merrill Lynch Funds Distributor, Inc. ("MLFD" or "Distributor"), a
wholly-owned subsidiary of Merrill Lynch Group, Inc.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee based upon the average daily value
of the Fund's net assets at the following annual rates: 0.55% of the
Fund's average daily net assets not exceeding $500 million; 0.525% of
average daily net assets in excess of $500 million but not exceeding $1
billion; and 0.50% of average daily net assets in excess of $1 billion.
For the six months ended January 31, 1997, FAM earned fees of $159,517,
of which $29,003 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 six months ended January 31, 1997, MLFD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the Fund's
Class A and Class D Shares as follows:
MLFD MLPF&S
Class A $280 $2,622
Class D $93 $1,268
For the six months ended January 31, 1997, MLPF&S received contingent
deferred sales charges of $46,898 and $269 relating to transactions in
Class B and Class C Shares, respectively.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-owned
subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of FAM, PSI, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for
the six months ended January 31, 1997 were $13,507,982 and $14,193,437,
respectively.
Net realized and unrealized gains as of January 31, 1997 were as
follows:
Realized Unrealized
Gains Gains
Long-term investments $356,696 $2,429,364
--------- ------------
Total $356,696 $2,429,364
========= ============
As of January 31, 1997, net unrealized appreciation for Federal income
tax purposes aggregated $2,429,364, of which $2,488,142 related to
appreciated securities and $58,778 related to depreciated securities.
The aggregate cost of investments at January 31, 1997 for Federal income
tax purposes was $50,822,821.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest transactions
was $5,551,048 and $2,857,107 for the six months ended January 31, 1997
and for the year ended July 31, 1996, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the
Six Months Ended Dollar
January 31, 1997 Shares Amount
Shares sold 82,814 $867,201
Shares issued to shareholders
in reinvestment of dividends 9,792 102,182
---------- -----------
Total issued 92,606 969,383
Shares redeemed (170,686) (1,791,652)
---------- -----------
Net decrease (78,080) $(822,269)
========== ===========
Class A Shares
For the Year Ended Dollar
July 31, 1996 Shares Amount
Shares sold 58,755 $612,296
Shares issued to shareholders
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)
========== ===========
Class B Shares for the
Six Months Ended Dollar
January 31, 1997 Shares Amount
Shares sold 146,199 $1,529,581
Shares issued to shareholders
in reinvestment of dividends 51,302 535,543
---------- -----------
Total issued 197,501 2,065,124
Automatic conversion
of shares (12,927) (135,900)
Shares redeemed (640,284) (6,701,740)
---------- -----------
Net decrease (455,710) $(4,772,516)
========== ===========
Class B Shares
For the Year Ended Dollar
July 31, 1996 Shares Amount
Shares sold 538,507 $5,640,207
Shares issued to shareholders
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 C Shares for the
Six Months Ended Dollar
January 31, 1997 Shares Amount
Shares sold 4,535 $47,488
Shares issued to shareholders
in reinvestment of dividends 1,258 13,134
---------- -----------
Total issued 5,793 60,622
Shares redeemed (12,337) (128,693)
---------- -----------
Net decrease (6,544) $(68,071)
========== ===========
Class C Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 119,097 $1,249,580
Shares issued to shareholders
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 D Shares for the Six Months Ended Dollar
January 31, 1997 Shares Amount
Shares sold 6,115 $64,656
Automatic conversion of shares 12,927 135,900
Shares issued to shareholders
in reinvestment of dividends 2,024 21,142
---------- -----------
Total issued 21,066 221,698
Shares redeemed (10,453) (109,890)
---------- -----------
Net increase 10,613 $111,808
========== ===========
Class D Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 41,562 $439,067
Automatic conversion of shares 26,183 268,153
Shares issued to shareholders
in reinvestment of dividends 2,314 24,132
---------- -----------
Total issued 70,059 731,352
Shares redeemed (22,465) (234,829)
---------- -----------
Net increase 47,594 $496,523
========== ===========
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.