MERRILL LYNCH
NORTH CAROLINA
MUNICIPAL
BOND FUND
[FUND LOGO]
STRATEGIC
Performance
Annual Report
July 31, 1997
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless accompanied or
preceded by the Fund's current prospectus. Past performance results
shown in this report should not be considered a representation of future
performance. Investment return and principal value of shares will
fluctuate so that shares, when redeemed, may be worth more or less than
their original cost. Statements and other information herein are as
dated and are subject to change.
Merrill Lynch North Carolina
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, NJ
08543-9011 #16401 -- 7/97
[RECYCLE LOGO]
Printed on post-consumer recycled paper
Merrill Lynch North Carolina Municipal Bond Fund July 31, 1997
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the six months ended July 31, 1997, a number of very favorable
factors combined to push both tax-exempt and taxable bond yields to
recent historic lows. A slowing domestic economy, a continued benign, if
not improving, inflationary environment, a declining Federal budget
deficit with resultant reduced Treasury borrowing needs, and a
successful Congressional budget accord all resulted in significant
declines in fixed-income yields. By the end of July, 30-year US Treasury
bond yields had declined approximately 50 basis points (0.50%) to 6.30%,
their lowest level in over a year. Similarly, as measured by the Bond
Buyer Revenue Bond Index, long-term municipal revenue bond yields fell
over 50 basis points to end the July 31, 1997 quarter at 5.49%,
their lowest level since early 1994.
The decline in tax-exempt yields in recent months has been even more
impressive given that the municipal market has lost much of the
technical support it had enjoyed for over a year. In previous quarters,
new tax-exempt bond issuance declined or remained stable. During the six
months ended July 31, 1997, approximately $100 billion in new long-term
municipal securities was underwritten, an increase of over 7.5% versus
the comparable period in 1996. As tax-exempt bond yields declined, many
municipal bond issuers have taken this opportunity to both issue new
debt and refinance older, higher-couponed debt with new, lower-yielding
issues. This refinancing has led to a surge in tax-exempt issuance in
recent months. Over the three months ended July 31, 1997, new
long-term tax-exempt bond issuance totaled approximately $55 billion, an
increase of over 15% versus the July 31, 1996 quarter.
The decline in municipal bond yields has also resulted in some reduction
in retail investor demand. In earlier episodes of rapidly declining
interest rates, individual investor demand initially fell until
investors became more acclimated to the current levels. Should interest
rates stabilize, we expect investor demand to return to earlier levels.
Also, this past June and July, municipal bond investors received over
$50 billion in assets from coupon income payments, bond maturities, and
the proceeds from early bond redemptions. Despite the continued allure
of the US equity market, it is likely that much of these assets will be
reallocated to the municipal bond market as investors adjust to the new
investment environment.
Looking forward, given the extent of the recent bond market rally, some
retrenchment or at least a period of consolidation is likely. However,
the positive backdrop of modest economic growth and low inflation
suggests that any such adjustment is not likely to be excessive. Despite
recent increases in new bond issuance, supply for all of 1997 is not
expected to be materially different than earlier estimates of
approximately $175 billion. It is likely that the recent increase in
issuance has largely borrowed from that originally scheduled for later
this year. Additionally, any significant increase in tax-exempt bond
yields will prevent any further bond refinancings, reducing future
supply. Unless the current positive economic fundamentals undergo
immediate and significant deterioration, any increase in
municipal bond yields is likely to be viewed as an opportunity to
purchase more attractively priced tax-exempt securities.
Fiscal Year in Review
During the past 12 months, the municipal bond market was characterized
by tremendous price volatility within a narrow trading range. We focused
on purchasing long-term insured bonds as yields approached 6.00% and
selling these securities as yields rallied to 5.50%. The Fund was fully
invested in long-term securities during most of the fiscal year to seek
to achieve an above industry average current yield. The Fund's cash
equivalent reserves fluctuated between 5% -- 10% of total assets, and a
large portion of assets committed to longer-term maturities currently
have coupons structured for income rather than price appreciation. This
strategy served the Fund well during this particularly volatile period
for the fixed-income markets in general, generating total return
performance comparable to the industry average as well as an above-
average yield.
Portfolio Matters
During the six months ended July 31, 1997, we maintained a slightly
constructive posture on interest rates. We believed that the strong
economic growth that prevailed in the first quarter of 1997 would slow
considerably in the second quarter. Slow growth combined with continued
low inflation and a balanced budget accord provided a significant
decline in long-term interest rates.
The North Carolina municipal market continued to experience very little
activity during the past six months. This was a result of the small
amount of new issuance, just over $1.5 billion in municipal bonds,
coming to the North Carolina tax-exempt market. This represents a
decline in issuance of 21% as compared to the same period in 1996.
During the past three months, just under $500 million in bonds was
issued in North Carolina, a decline of 42% versus the comparable period
a year ago. Additionally, the majority of new issuance in North Carolina
had been dominated by current coupons and poor call protection features,
which we believe would not have enhanced the Fund's overall structure.
In Conclusion
We have adopted a slightly defensive posture for the second half of
1997. We believe that economic growth will reappear and that there will
be an increase in long-term interest rates. Our strategy will be to
favor higher-couponed issues over interest rate-sensitive securities
that have greater potential for capital appreciation. As new issuance in
the North Carolina tax-exempt market remains at low levels, we expect to
continue to remain fully invested in the coming months.
We appreciate your ongoing interest in Merrill Lynch North Carolina
Municipal Bond Fund, and we look forward to assisting you with your
financial needs in the months and years ahead.
Sincerely,
/S/ARTHUR ZEIKEL
Arthur Zeikel
President
/S/VINCENT R. GIORDANO
Vincent R. Giordano
Senior Vice President
/S/ROBERT D. SNEEDEN
Robert D. Sneeden
Vice President and Portfolio Manager
September 4, 1997
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill
Lynch Select PricingSM System, which offers four pricing alternatives:
[bullet] Class A Shares incur a maximum initial sales charge (front-end
load) of 4% and bear no ongoing distribution or account maintenance
fees. Class A Shares are available only to eligible investors.
[bullet] Class B Shares are subject to a maximum contingent deferred
sales charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B Shares
are subject to a distribution fee of 0.25% and an account maintenance
fee of 0.25%. These shares automatically convert to Class D Shares after
approximately 10 years. (There is no initial sales charge for automatic
share conversions.)
[bullet] Class C Shares are subject to a distribution fee of 0.35% and
an account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
[bullet] Class D Shares incur a maximum initial sales charge of 4% and
an account maintenance fee of 0.10% (but no distribution fee).
None of the past results shown should be considered a representation of
future performance. Figures shown in the "Average Annual Total Return"
tables as well as the total returns and cumulative total returns in the
"Performance Summary" tables assume reinvestment of all dividends and
capital gains distributions at net asset value on the payable date.
Investment return and principal value of shares will fluctuate so that
shares, when redeemed, may be worth more or less than their original
cost. Dividends paid to each class of shares will vary because of the
different levels of account maintenance, distribution and transfer
agency fees applicable to each class, which are deducted from the income
available to be paid to shareholders.
<TABLE>
<CAPTION>
Recent Performance Results
12 Month 3 Month
7/31/97 4/30/97 7/31/96 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $10.87 $10.41 $10.36 + 4.92% +4.42%
Class B Shares* 10.88 10.42 10.36 + 5.02 +4.41
Class C Shares* 10.87 10.41 10.36 + 4.92 +4.42
Class D Shares* 10.88 10.42 10.37 + 4.92 +4.41
Class A Shares -- Total Return* +10.17(1) +5.68(2)
Class B Shares -- Total Return* + 9.71(3) +5.54(4)
Class C Shares -- Total Return* + 9.50(5) +5.52(6)
Class D Shares -- Total Return* +10.05(7) +5.65(8)
Class A Shares -- Standardized 30-day Yield 4.33%
Class B Shares -- Standardized 30-day Yield 4.01%
Class C Shares -- Standardized 30-day Yield 3.91%
Class D Shares -- Standardized 30-day Yield 4.24%
* 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 $0.512 per share ordinary income dividends.
(2) Percent change includes reinvestment of $0.127 per share ordinary income dividends.
(3) Percent change includes reinvestment of $0.458 per share ordinary income dividends.
(4) Percent change includes reinvestment of $0.114 per share ordinary income dividends.
(5) Percent change includes reinvestment of $0.448 per share ordinary income dividends.
(6) Percent change includes reinvestment of $0.111 per share ordinary income dividends.
(7) Percent change includes reinvestment of $0.501 per share ordinary income dividends.
(8) Percent change includes reinvestment of $0.125 per share ordinary income dividends.
</TABLE>
[GRAPHIC LINE CHART OMITTED: Total Return Based on a $10,000 Investment]
Total Return Based on a $10,000 Investment -- Class A Shares and Class B
Shares
A line graph depicting the growth of an investment in the Fund's Class A
Shares and Class B Shares compared to growth of an investment in the
Lehman Brothers Municipal Bond Index. Beginning and ending values are:
9/25/92** 7/97
ML North Carolina Municipal Bond Fund+--
Class A Shares* $9,600 $13,445
ML North Carolina Municipal Bond Fund+--
Class B Shares* $10,000 $13,679
Lehman Brothers Municipal Bond Index++ $10,000 $14,103
Total Return Based on a $10,000 Investment--Class C Shares and Class D
Shares
A line graph depicting the growth of an investment in the Fund's Class C
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** 7/97
ML North Carolina Municipal Bond Fund+--
Class C Shares* $10,000 $12,542
ML North Carolina Municipal Bond Fund+--
Class D Shares* $9,600 $12,221
Lehman Brothers Municipal Bond Index++ $10,000 $13,054
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
** Commencement of Operations.
+ ML 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 6/30/97 +8.07% +3.75%
Inception (9/25/92)
through 6/30/97 +6.68 +5.77
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/97 +7.53% +3.53%
Inception (9/25/92) through 6/30/97 +6.14 +6.14
* Maximum contingent deferred sales charge is 4% and is reduced
to 0% after 4 years.
** Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 6/30/97 +7.42% +6.42%
Inception (10/21/94)
through 6/30/97 +7.63 +7.63
* Maximum contingent deferred sales charge is 1% and is reduced
to 0% after 1 year.
** Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 6/30/97 +7.97% +3.65%
Inception (10/21/94) through 6/30/97 +8.18 +6.55
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
<TABLE>
<CAPTION>
Performance Summary -- Class A Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
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-- 7/31/97 10.51 10.87 -- 0.282 + 6.36
Total $2.622
Cumulative total return as of 7/31/97: +40.04%**
* Figures may include short-term capital gains distributions.
** Figures do not include sales charge; results would be lower if sales charge was included.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class B Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
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 -- 7/31/97 10.51 10.88 -- 0.252 + 6.15
Total $2.369
Cumulative total return as of 7/31/97: +36.79%**
* Figures may include short-term capital gains distributions.
** Figures do not reflect deduction of any sales charge; results would be lower if sales charge was deducted.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class C Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94 -- 12/31/94 $9.80 $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 -- 7/31/97 10.51 10.87 -- 0.247 + 5.99
Total $1.261
Cumulative total return as of 7/31/97: +25.42%**
* Figures may include short-term capital gains distributions.
** Figures do not reflect deduction of any sales charge; results would be lower if sales charge was deducted.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class D Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94 -- 12/31/94 $9.80 $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 -- 7/31/97 10.51 10.88 -- 0.276 + 6.40
Total $1.405
Cumulative total return as of 7/31/97: +27.31%**
* Figures may include short-term capital gains distributions.
** Figures do not include sales charge; results would be lower if sales charge was included.
</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
GO General Obligation Bonds
HFA Housing Finance Agency
S/F Single-Family
UT Unlimited Tax
<TABLE>
<CAPTION>
Merrill Lynch North Carolina Municipal Bond Fund July 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 -- 88.8%
AA Aa3 $2,250 Charlotte-Mecklenberg Hospital Authority, North Carolina, Health
Care System Revenue Bonds, Series A, 5.875% due 1/15/2026 $2,355
AAA Aaa 2,000 Charlotte, North Carolina, Water and Sewer, GO, UT, 5.60% due 5/01/2021 2,088
A A2 500 Chatham County, North Carolina, Industrial Facilities and Pollution
Control Financing Authority Revenue Bonds (Carolina Power and Light
Company), 6.30% due 6/15/2014 535
AAA Aaa 1,000 Cumberland County, North Carolina, COP (Civic Center Project), Series A,
6.40% due 12/01/2024 (b) 1,107
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 1,580
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 3,872
AAA Aaa 2,000 North Carolina Eastern Municipal Power Agency, Power System Revenue
Refunding Bonds, Series B, 5.875% due 1/01/2021 (c) 2,119
North Carolina Educational Facilities, Finance Agency Revenue Bonds:
AA+ Aa1 2,000 (Duke University Project), Series C, 6.75% due 10/01/2021 2,202
AAA NR* 900 Refunding (Elon College Project), 6.375% due 1/01/2007 (d) 979
North Carolina HFA, Revenue Bonds:
AA Aa 2,720 AMT, Series V, 6.80% due 9/01/2025 2,878
AA Aa 660 Series U, 6.70% due 3/01/2018 702
North Carolina HFA, S/F Revenue Bonds:
AA Aa2 1,755 AMT, Series X, 6.70% due 9/01/2026 1,863
AA Aa2 1,940 Series W, 6.50% due 3/01/2018 2,052
North Carolina Medical Care Commission, Hospital Revenue Bonds:
AAA Aaa 2,000 (Moore Regional Hospital Project), 5% due 10/01/2018 (b) 1,929
NR* Aaa 2,000 (Presbyterian Hospital Project), 7.375% due 10/01/2000 (e) 2,234
AAA Aaa 750 Refunding (Alamance Health Services Inc. Project), Series A, 6.375% due
8/15/2020 (a) 824
A+ A1 2,000 (Rex Hospital Project), 6.25% due 6/01/2017 2,142
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 2,509
AAA Aaa 2,000 North Carolina State, GO, Series A, 5.10% due 3/01/2003 2,096
AAA Aaa 4,000 Pasquotank County, North Carolina, COP (Public Schools Project), 5% due
6/01/2015 (c) 3,953
AA+ Aa 5,115 Raleigh, North Carolina, Combined Enterprise System Revenue Bonds,
5.125% due 3/01/2022 5,121
A- A 700 Shelby, North Carolina, Combined Producing Facilities System Revenue Bonds
(Capital Improvement), 6.625% due 6/01/2002 (e) 790
AA Aa3 800 University of North Carolina, Chapel Hill, Hospital Revenue Bonds (Board
of Governors), 6.375% due 2/15/2017 854
AA+ Aa2 1,000 University of North Carolina, Chapel Hill, Revenue Refunding Bonds
(Parking System), Series B, 5.10% due 5/15/2009 1,033
Puerto Rico -- 8.2%
BBB+ Baa1 1,000 Puerto Rico Electric Power Authority, Power Revenue Refunding Bonds,
Series U, 6% due 7/01/2014 1,062
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 2,211
A Baa1 1,150 Puerto Rico Public Buildings Authority, Guaranteed Government Facilities
Revenue Bonds, Series B, 5.25% due 7/01/2021 1,133
Total Investments (Cost -- $48,829) -- 97.0% 52,223
Other Assets Less Liabilities -- 3.0% 1,640
---------
Net Assets -- 100.0% $53,863
=========
(a) FSA Insured.
(b) AMBAC Insured.
(c) MBIA Insured.
(d) Connie Lee Insured.
(e) Prerefunded.
* Not Rated.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of July 31, 1997
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $48,828,526) (Note 1a) $52,222,936
Receivables:
Securities sold $999,617
Interest 789,293
Beneficial interest sold 219,965 2,008,875
---------
Deferred organization expenses (Note 1e) 1,550
Prepaid registration fees and other assets (Note 1e) 1,453
-------------
Total assets 54,234,814
-------------
Liabilities: Payables:
Beneficial interest redeemed 169,308
Dividends to shareholders (Note 1f) 62,048
Investment adviser (Note 2) 24,814
Distributor (Note 2) 18,418 274,588
---------
Accrued expenses and other liabilities 97,566
-------------
Total liabilities 372,154
-------------
Net Assets: Net assets $53,862,660
=============
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited number of
Consist of: shares authorized $78,554
Class B Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 378,219
Class C Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 18,867
Class D Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 19,599
Paid-in capital in excess of par 50,885,056
Accumulated realized capital losses on investments -- net (Note 5) (912,045)
Unrealized appreciation on investments -- net 3,394,410
-------------
Net assets $53,862,660
=============
Net Asset Value: Class A -- Based on net assets of $8,542,506 and 785,535 shares of
beneficial interest outstanding $10.87
=============
Class B -- Based on net assets of $41,136,651 and 3,782,186 shares of
beneficial interest outstanding $10.88
=============
Class C -- Based on net assets of $2,051,569 and 188,665 shares of
beneficial interest outstanding $10.87
=============
Class D -- Based on net assets of $2,131,934 and 195,987 shares of
beneficial interest outstanding $10.88
=============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Year Ended
July 31, 1997
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned $3,141,784
(Note 1d):
Expenses: Investment advisory fees (Note 2) $303,480
Account maintenance and distribution fees -- Class B (Note 2) 217,371
Professional fees 56,468
Accounting services (Note 2) 53,073
Transfer agent fees -- Class B (Note 2) 24,461
Printing and shareholder reports 20,297
Account maintenance and distribution fees -- Class C (Note 2) 10,871
Amortization of organization expenses (Note 1e) 10,285
Pricing fees 5,370
Custodian fees 4,173
Transfer agent fees -- Class A (Note 2) 3,611
Trustees fees and expenses 2,823
Registration fees (Note 1e) 2,718
Account maintenance fees -- Class D (Note 2) 2,044
Transfer agent fees -- Class C (Note 2) 1,008
Transfer agent fees -- Class D (Note 2) 941
-----------
Total expenses before reimbursement 718,994
Reimbursement of expenses (Note 2) (43,196)
-----------
Total expenses after reimbursement 675,798
-----------
Investment income -- net 2,465,986
-----------
Realized & Realized gain on investments -- net 1,451,500
Unrealized Gain on Change in unrealized appreciation on investments -- net 1,158,014
Investments -- Net -----------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $5,075,500
===========
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
For the Year Ended July 31,
Increase (Decrease) in Net Assets: 1997 1996
<S> <C> <C> <C>
Operations: Investment income -- net $2,465,986 $2,759,757
Realized gain (loss) on investments -- net 1,451,500 (418,368)
Change in unrealized appreciation on investments -- net 1,158,014 883,090
------------ ------------
Net increase in net assets resulting from operations 5,075,500 3,224,479
------------ ------------
Dividends to Investment income -- net:
Shareholders Class A (383,781) (425,644)
(Note 1f): Class B (1,906,705) (2,197,971)
Class C (77,565) (58,322)
Class D (97,935) (77,820)
------------ ------------
Net decrease in net assets resulting from dividends to shareholders (2,465,986) (2,759,757)
------------ ------------
Beneficial Interest Net decrease in net assets derived from beneficial interest transactions (7,677,756) (2,857,107)
Transactions ------------ ------------
(Note 4):
Net Assets: Total decrease in net assets (5,068,242) (2,392,385)
Beginning of year 58,930,902 61,323,287
------------ ------------
End of year $53,862,660 $58,930,902
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Class A
The following per share data and ratios have been derived For the
from information provided in the financial statements. Period
Sept. 25,
1992+ to
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 .51 .51 .54 .54 .46
Realized and unrealized gain (loss) on ------- ------- ------- ------- -------
investments -- net .51 .07 .10 (.42) .67
Total from investment operations 1.02 .58 .64 .12 1.13
------- ------- ------- ------- -------
Less dividends and distributions:
Investment income -- net (.51) (.51) (.54) (.54) (.46)
In excess of realized gain on
investments -- net -- -- -- (.06) --
------- ------- ------- ------- -------
Total dividends and distributions (.51) (.51) (.54) (.60) (.46)
------- ------- ------- ------- -------
Net asset value, end of period $10.87 $10.36 $10.29 $10.19 $10.67
======= ======= ======= ======= =======
Total Investment Based on net asset value per share 10.17% 5.76% 6.60% 1.11% 11.52%++++
Return:** ======= ======= ======= ======= =======
Ratios to Average Expenses, net of reimbursement .80% .75% .71% .50% .20%*
Net Assets: ======= ======= ======= ======= =======
Expenses .88% .90% .93% .96% 1.15%*
======= ======= ======= ======= =======
Investment income -- net 4.89% 4.92% 5.43% 5.14% 5.26%*
======= ======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $8,542 $8,043 $9,256 $11,071 $9,311
Data: ======= ======= ======= ======= =======
Portfolio turnover 94.59% 90.22% 52.33% 74.35% 27.98%
======= ======= ======= ======= =======
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of Operations.
++++ Aggregate total investment return.
See Notes to Financial Statements.
<CAPTION>
Class B
For the
Period
Sept. 25,
The following per share data and ratios have been derived 1992+ to
from information provided in the financial statements. 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 .46 .46 .49 .49 .41
Realized and unrealized gain (loss) on
investments -- net .52 .07 .10 (.42) .67
--------- --------- --------- --------- ---------
Total from investment operations .98 .53 .59 .07 1.08
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income -- net (.46) (.46) (.49) (.49) (.41)
In excess of realized gain on
investments -- net -- -- -- (.06) --
--------- --------- --------- --------- ---------
Total dividends and distributions (.46) (.46) (.49) (.55) (.41)
--------- --------- --------- --------- ---------
Net asset value, end of period $10.88 $10.36 $10.29 $10.19 $10.67
========= ========= ========= ========= =========
Total Investment Based on net asset value per share 9.71% 5.21% 6.06% .60% 11.06%++++
Return:** ========= ========= ========= ========= =========
Ratios to Average Expenses, net of reimbursement 1.31% 1.26% 1.22% 1.01% .70%*
Net Assets: ========= ========= ========= ========= =========
Expenses 1.39% 1.41% 1.44% 1.46% 1.67%*
========= ========= ========= ========= =========
Investment income -- net 4.39% 4.41% 4.91% 4.64% 4.77%*
========= ========= ========= ========= =========
Supplemental Net assets, end of period (in thousands) $41,137 $47,236 $49,978 $50,664 $39,970
Data: ========= ========= ========= ========= =========
Portfolio turnover 94.59% 90.22% 52.33% 74.35% 27.98%
========= ========= ========= ========= =========
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of Operations.
++++ Aggregate total investment return.
See Notes to Financial Statements.
<CAPTION>
Class C Class D
The following per share data and ratios have been derived For the For the
from information provided in the financial statements. For the Period For the Period
Year Oct 21, Year Oct. 21,
Ended 1994+ to Ended 1994+ to
July 31, July 31, July 31, July 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of
Operating period $10.36 $10.28 $9.80 $10.37 $10.29 $9.80
Performance: -------- -------- -------- -------- -------- --------
Investment income -- net .45 .45 .37 .50 .50 .41
Realized and unrealized gain on
investments -- net .51 .08 .48 .51 .08 .49
-------- -------- -------- -------- -------- --------
Total from investment operations .96 .53 .85 1.01 .58 .90
-------- -------- -------- -------- -------- --------
Less dividends from investment
income -- net (.45) (.45) (.37) (.50) (.50) (.41)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $10.87 $10.36 $10.28 $10.88 $10.37 $10.29
======== ======== ======== ======== ======== ========
Total Investment Based on net asset value per share 9.50% 5.20% 8.87%++ 10.05% 5.75% 9.39%++++
Return:** ======== ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 1.41% 1.37% 1.37%* .90% .85% .85%*
Net Assets: ======== ======== ======== ======== ======== ========
Expenses 1.49% 1.51% 1.57%* .98% 1.00% 1.05%*
======== ======== ======== ======== ======== ========
Investment income -- net 4.28% 4.29% 4.67%* 4.79% 4.81% 5.28%*
======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period
Data: (in thousands) $2,052 $1,772 $713 $2,132 $1,880 $1,377
======== ======== ======== ======== ======== ========
Portfolio turnover 94.59% 90.22% 52.33% 94.59% 90.22% 52.33%
======== ======== ======== ======== ======== ========
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of Operations.
++++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch North Carolina Municipal Bond Fund July 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. The Fund offers
four classes of shares under the Merrill Lynch Select Pricing sm System.
Shares of Class A and Class D are sold with a front-end sales charge.
Shares of Class B and Class C may be subject to a contingent deferred
sales charge. All classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions, except
that Class B, Class C and Class D Shares bear certain expenses related
to the account maintenance of such shares, and Class B and Class C
Shares also bear certain expenses related to the distribution of such
shares. Each class has exclusive voting rights with respect to matters
relating to its account maintenance and distribution expenditures. The
following is a summary of significant accounting policies followed
by the Fund.
(a) Valuation of investments -- Municipal bonds and other portfolio
securities in which the Fund invests are traded primarily in the over-
the-counter municipal bond and money markets and are valued at the last
available bid price in the over-the-counter market or on the basis of
yield equivalents as obtained from one or more dealers that make markets
in the securities. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their settlement prices as
of the close of such exchanges. Short-term investments with remaining
maturities of sixty days or less are valued at amortized cost, which
approximates market value. Securities and assets for which market
quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of
Trustees of the Trust, including valuations furnished by a pricing
service retained by the Trust, which may utilize a matrix system for
valuations. The procedures of the pricing service and its valuations are
reviewed by the officers of the Trust under the general supervision of
the Trustees.
(b) Derivative financial instruments -- The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the counterparty
does not perform under the contract.
[bullet] Financial futures contracts -- The Fund may purchase or sell
interest rate futures contracts and options on such futures contracts
for the purpose of hedging the market risk on existing securities or the
intended purchase of securities. Futures contracts are contracts for
delayed delivery of securities at a specific future date and at a
specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required by
the exchange on which the transaction is effected. Pursuant to the
contract, the Fund agrees to receive from or pay to the broker an amount
of cash equal to the daily fluctuation in value of the contract. Such
receipts or payments are known as variation margin and are recorded by
the Fund as unrealized gains or losses. When the contract is closed, the
Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the
time it was closed.
(c) Income taxes -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its taxable
income to its shareholders. Therefore, no Federal income tax provision
is required.
(d) Security transactions and investment income -- Security transactions
are recorded on the dates the transactions are entered into (the trade
dates). Interest income is recognized on the accrual basis. Discounts
and market premiums are amortized into interest income. Realized gains
and losses on security transactions are determined on the identified
cost basis.
(e) Deferred organization expenses and prepaid registration fees --
Deferred organization expenses are charged to expense on a straight-line
basis over a five-year period. Prepaid registration fees are charged to
expense as the related shares are issued.
(f) Dividends and distributions -- Dividends from net investment income
are declared daily and paid monthly. Distributions of capital gains are
recorded on the ex-dividend dates.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is Princeton
Services, Inc. ("PSI"), an indirect wholly-owned subsidiary of Merrill
Lynch & Co., Inc. ("ML & Co."), which is the limited partner. The Fund
has also entered into a Distribution Agreement and Distribution Plans
with Merill Lynch Funds Distributor, Inc. ("MLFD" or "Distributor"),
a wholly-owned subsidiary of Merrill Lynch Group, Inc.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee based upon the average daily value
of the Fund's net assets at the following annual rates: 0.55% of the
Fund's average daily net assets not exceeding $500 million; 0.525% of
average daily net assets in excess of $500 million but not exceeding $1
billion; and 0.50% of average daily net assets in excess of $1 billion.
For the year ended July 31, 1997, FAM earned fees of $303,480, of which
$43,196 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, 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 $619 $5,275
Class D $338 $3,798
For the year ended July 31, 1997, MLPF&S received contingent deferred
sales charges of $99,867 and $303 relating to transactions in Class B
and Class C Shares, respectively.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-owned
subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of FAM, PSI, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for
the year ended July 31, 1997 were $49,575,173 and $51,542,225,
respectively.
Net realized and unrealized gains as of July 31, 1997 were as follows:
Realized Unrealized
Gains Gains
Long-term investments $1,451,500 $3,394,410
----------- -----------
Total $1,451,500 $3,394,410
=========== ===========
As of July 31, 1997, net unrealized appreciation for Federal income tax
purposes aggregated $3,394,410, all of which related to appreciated
securities. The aggregate cost of investments at July 31, 1997 for
Federal income tax purposes was $48,828,526.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest transactions
was $7,677,756 and $2,857,107 for the years ended July 31, 1997 and July
31, 1996, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 270,339 $2,840,283
Shares issued to shareholders
in reinvestment of dividends 19,995 209,655
----------- -----------
Total issued 290,334 3,049,938
Shares redeemed (280,995) (2,952,777)
----------- -----------
Net increase 9,339 $97,161
=========== ===========
Class A Shares for the Year Dollar
Ended 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 Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 433,279 $4,563,112
Shares issued to shareholders
in reinvestment of dividends 93,482 979,826
----------- -----------
Total issued 526,761 5,542,938
Automatic conversion
of shares (19,775) (208,529)
Shares redeemed (1,282,597) (13,453,017)
----------- -----------
Net decrease (775,611) $(8,118,608)
=========== ===========
Class B Shares for the Year Dollar
Ended 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 Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 55,606 $588,031
Shares issued to shareholders
in reinvestment of dividends 2,481 26,004
----------- -----------
Total issued 58,087 614,035
Shares redeemed (40,463) (423,014)
----------- -----------
Net increase 17,624 $191,021
=========== ===========
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 Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 16,824 $178,245
Automatic conversion
of shares 19,775 208,529
Shares issued to shareholders
in reinvestment of dividends 4,050 42,482
----------- -----------
Total issued 40,649 429,256
Shares redeemed (26,015) (276,586)
----------- -----------
Net increase 14,634 $152,670
=========== ===========
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, 1997, the Fund had a net capital loss carryforward of
approximately $592,000, all of which expires in 2004. This amount will
be available to offset like amounts of any future taxable gains.
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
Merrill Lynch 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, 1997, the related statements of operations for the year
then ended and changes in net assets for each of the years in the two-
year period then ended, and the financial highlights for each of the
years in the four-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.
We conducted our audits in accordance with gener-ally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
the financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned at July 31, 1997 by correspondence with
the custodian. 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, 1997, the results of its
operations, the changes in its net assets, and the financial highlights
for the respective stated periods in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
September 5, 1997
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid monthly by Merrill
Lynch North Carolina Municipal Bond Fund during its taxable year ended
July 31, 1997 qualify as tax-exempt interest dividends for Federal
income tax purposes.
Additionally, there were no capital gains distributed by the Fund during
the year.
Please retain this information for your records.
OFFICERS AND TRUSTEES
Arthur Zeikel, President and Trustee
James H. Bodurtha, Trustee
Herbert I. London, Trustee
Robert R. Martin, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Terry K. Glenn, Executive Vice President
Vincent R. Giordano, Senior Vice President
Donald C. Burke, Vice President
Kenneth A. Jacob, Vice President
Robert D. Sneeden, Vice President
Gerald M. Richard, Treasurer
Robert E. Putney III, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
