MERRILL LYNCH
NORTH CAROLINA
MUNICIPAL
BOND FUND
FUND LOGO
Annual Report
July 31, 1998
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Statements and other information herein are as dated and are subject
to change.
Merrill Lynch North Carolina
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
Merrill Lynch North Carolina Municipal Bond Fund
July 31, 1998
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the six months ended July 31, 1998, long-term tax-exempt
revenue bond yields were little changed. Throughout the period, the
near absence of inflationary pressures continued to support low
interest rates. However, consistently strong domestic economic
growth has caused some investors to fear that the Federal Reserve
Board will be forced eventually to raise short-term interest rates.
Such action would be taken to ensure that the US economy's present
rate of growth would decelerate before any inflationary pressures
could develop. These concerns pushed bond yields modestly higher by
late April.
However, the weakening financial conditions in many Asian countries
subsequently calmed investor fears of Federal Reserve Board
intervention, and fixed-income prices again moved higher. Long-term
uninsured municipal bond yields, as measured by the Bond Buyer
Revenue Bond Index, rose less than 5 basis points (0.05%) to end the
July quarter at 5.36%. As in late 1997 and early 1998, US Treasury
bond yields benefited from a "flight to quality" as foreign
investors were drawn to the relative safe haven of US Government
securities. Long-term US Treasury bond yields declined approximately
10 basis points to end the July quarter at 5.71%.
Thus far in 1998, the municipal bond market has experienced
unexpectedly strong supply pressures. These supply pressures have
prevented tax-exempt bond yields from declining as much as US
Treasury bond yields. During the first six months of 1998, more than
$153 billion in new tax-exempt bonds were underwritten, an increase
of almost 50% compared to the same period a year ago. During the
quarter ended July 31, 1998, municipalities issued over $75 billion
in new securities, an increase of more than 35% compared to the same
three-month period in 1997. Additionally, corporate issuers have
also viewed current interest rate levels as an opportunity to issue
significant amounts of taxable securities. Thus far in 1998, over
$500 billion in investment-grade corporate bonds have been
underwritten, an increase of more than 70% compared to the same
period a year ago. This sizeable corporate bond issuance has tended
to both support generally higher fixed-income yields and reduce the
demand for tax-exempt bonds.
However, the recent pace of new municipal bond issuance is unlikely
to be maintained. Continued increases in bond issuance will require
lower and lower tax-exempt bond yields to generate the economic
savings necessary for additional municipal bond refinancings.
Preliminary estimates for 1998 total municipal bond issuance are in
the $200 billion--$225 billion range. These estimates suggest that
recent supply pressures are likely to abate later in the year.
Earlier this year, municipal bond investors received approximately
$30 billion in coupon payments, bond maturities and proceeds from
early redemptions. The demand generated by these assets has helped
to offset the increase in supply seen thus far in 1998.
The continued impact of the Asian financial crisis on the US
domestic economy's future growth remains unclear. Current Asian
economic conditions continue to reflect ongoing weakness. Recent
trade data indicated that reduced US exports to these countries may
have lowered US economic growth by as much as 2% in the first
quarter of 1998. Since further trade deterioration is possible in
the coming months, we do not believe that the Federal Reserve Board
will be willing to raise interest rates, barring a dramatic and
unexpected resurgence of domestic inflation.
These factors suggest that over the near term, interest rates are
unlikely to rise by any appreciable amount. Recent supply pressures
have caused municipal bond yield ratios to rise relative to US
Treasury bond yields. At July 31, 1998, long-term tax-exempt bond
yields were at attractive yield ratios relative to US Treasury
securities of comparable maturities (over 90%), well in excess of
their expected range of 85%--88%. Tax-exempt bond yield ratios
rarely exceeded 90% in the 1980s and 1990s. Previous instances have
usually been associated with potential changes in Federal tax code
that would have adversely affected the tax-favored status of
municipal bonds. The present situation has developed largely because
of a temporary supply imbalance. These imbalances should soon be
corrected as tax-exempt bond issuance slows from its current rapid
pace later this year. Any further pressure on the municipal market
may well represent a very attractive investment opportunity.
Merrill Lynch North Carolina Municipal Bond Fund
July 31, 1998
Portfolio Strategy
During the six months ended July 31, 1998, our investment outlook
for Merrill Lynch North Carolina Municipal Bond Fund was basically
constructive. The deterioration in the Asian economies helped keep
interest rates low, even in the face of strong domestic economic
growth. This combination of strong growth and low inflation has kept
bond yields within a rather narrow trading range over the past six
months.
Issuance of new North Carolina tax-exempt municipal bonds was just
over $2.7 billion during the six-month period ended July 31, 1998.
This represents an increase of more than 40% compared to the same
six-month period a year ago. Additionally, the majority of new
issuance in North Carolina was dominated by current coupons and
lesser call protection. We do not view such securities as attractive
additions to the Fund's portfolio.
Looking ahead, we expect to continue to maintain our fully invested
position and our constructive portfolio strategy to seek to benefit
from a lower interest rate environment. However, anticipated lack of
new issuance in North Carolina may curtail our ability to execute
this strategy.
Fiscal Year in Review
During the fiscal year ended July 31, 1998, total municipal issuance
increased by more than 40% compared to the same period last year,
while North Carolina municipal issuance increased by more than 20%
over the same period. Both the tax-exempt and US Treasury markets
experienced a decline in yields, although the greater increase in
tax-exempt issuance resulted in municipal performance lagging that
of US Treasury securities.
Given the narrow trading range of the municipal bond market, we
maintained a slightly defensive strategy going into the second half
of 1997. We believed that economic growth would resurge and the
Federal Reserve Board would raise interest rates in order to keep
inflation under control. However, in late October 1997, the Asian
equity market turmoil created an increased demand for US Treasury
securities, causing a rally in the bond market. In response to the
Asian economic crisis and the continued domestic low inflation
environment, we shifted the Fund to a more aggressive position by
early November 1997. We remained constructive through July 31, 1998,
participating in the continued bond market rally, which brought
interest rates to their recent historic lows.
Throughout the fiscal year ended July 31, 1998, we maintained the
Fund's fully invested position. These strategies produced total
returns of +5.99%, +5.45%, +5.35% and +5.88% for the Fund's Class A,
Class B, Class C and Class D Shares, respectively, for the year
ended July 31, 1998. This compares to the Lipper Analytical
Services, Inc. average total return of +5.47% for similar North
Carolina tax-exempt funds during the same 12-month period.
In Conclusion
We appreciate your ongoing interest in Merrill Lynch North Carolina
Municipal Bond Fund, and we look forward to assisting you with your
financial needs in the months and years ahead.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Hugh T. Hurley III)
Hugh T. Hurley III
Vice President and Portfolio Manager
September 3, 1998
We are pleased to announce that Hugh T. Hurley III is responsible
for the day-to-day management of Merrill Lynch North Carolina
Municipal Bond Fund. Mr. Hurley has been employed by Merrill Lynch
Asset Management, L.P. (an affiliate of the Fund's investment
adviser) since 1996 as Vice President and since 1993 as Assistant
Vice President.
Merrill Lynch North Carolina Municipal Bond Fund
July 31, 1998
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. Figures shown in the "Recent Performance
Results" and "Average Annual Total Return" 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>
Recent Performance Results*
<CAPTION>
Standardized
12 Month 3 Month Since Inception 30-Day Yield
Total Return Total Return Total Return As of 7/31/98
<S> <C> <C> <C> <C>
ML North Carolina Municipal Bond Fund Class A Shares +5.99% +2.39% +48.43% 4.01%
ML North Carolina Municipal Bond Fund Class B Shares +5.45 +2.35 +44.24 3.66
ML North Carolina Municipal Bond Fund Class C Shares +5.35 +2.23 +32.12 3.57
ML North Carolina Municipal Bond Fund Class D Shares +5.88 +2.45 +34.80 3.91
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included. Total
investment returns are based on changes in net asset values for the
periods shown, and assume reinvestment of all dividends and capital
gains distributions at net asset value on the payable date. The
Fund's inception dates are: Class A and Class B Shares, 9/25/92; and
Class C and Class D Shares, 10/21/94.
</TABLE>
Merrill Lynch North Carolina Municipal Bond Fund
July 31, 1998
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment
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 7/98
ML North Carolina Municipal Bond Fund++--
Class A Shares* $ 9,600 $14,250
ML North Carolina Municipal Bond Fund++--
Class B Shares* $10,000 $14,424
Lehman Brothers Municipal Bond
Index++ $10,000 $14,949
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** 7/98
ML North Carolina Municipal Bond Fund++--
Class C Shares* $10,000 $13,212
ML North Carolina Municipal Bond Fund++--
Class D Shares* $ 9,600 $12,940
Lehman Brothers Municipal Bond
Index++ $10,000 $13,837
[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. The
starting date for the Index in the Class A & Class B Shares graph is
9/30/92 and in the Class C & Class D Shares graph is 10/31/94.
Past performance is not predictive of future performance.
Merrill Lynch North Carolina Municipal Bond Fund
July 31, 1998
PERFORMANCE DATA (concluded)
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/98 +8.87% +4.51%
Five Years Ended 6/30/98 +5.88 +5.02
Inception (9/25/92)
through 6/30/98 +7.05 +6.30
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/98 +8.32% +4.32%
Five Years Ended 6/30/98 +5.35 +5.35
Inception (9/25/92)
through 6/30/98 +6.51 +6.51
[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 6/30/98 +8.21% +7.21%
Inception (10/21/94)
through 6/30/98 +7.79 +7.79
[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 6/30/98 +8.86% +4.50%
Inception (10/21/94)
through 6/30/98 +8.36 +7.17
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
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, 1998 qualify as tax-exempt interest dividends
for Federal income tax purposes.
Additionally, the following table summarizes the taxable ordinary
income distributions paid by the Fund during the year:
Record Payable Ordinary
Date Date Income
12/19/97 12/31/97 $.003184
There were no capital gains distributed by the Fund during the year.
Please retain this information for your records.
Merrill Lynch North Carolina Municipal Bond Fund
July 31, 1998
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
HFA Housing Finance Agency
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
North Carolina--88.0%
<S> <S> <C> <S> <C>
AA Aa3 $2,250 Charlotte-Mecklenberg Hospital Authority, North Carolina, Health Care
System Revenue Bonds, Series A, 5.875% due 1/15/2026 $ 2,400
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
Cumberland County, North Carolina, COP (Civic Center Project) (b):
AAA Aaa 1,000 Refunding, 5% due 12/01/2024 967
AAA Aaa 1,000 Series A, 6.40% due 12/01/2004 (e) 1,135
AAA Aaa 2,525 Gastonia, North Carolina, Combined Utilities System Revenue Refunding
Bonds, 4.75% due 5/01/2015 (c) 2,443
AAA Aa1 1,225 Greensboro, North Carolina, Public Improvement Bonds, UT, 4.75% due
4/01/2018 1,179
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 1,612
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 3,886
AAA Aaa 500 Morganton, North Carolina, Water and Sewer, UT, 5.70% due 6/01/2013 (g) 533
AAA Aaa 1,500 New Hanover County, North Carolina, Hospital Revenue Bonds (New Hanover
Regional Medical Center Project), 5.75% due 10/01/2026 (b) 1,587
AAA Aaa 2,000 North Carolina Eastern Municipal Power Agency, Power System Revenue
Refunding Bonds, Series B, 5.875% due 1/01/2021 (c) 2,144
North Carolina Educational Facilities, Finance Agency Revenue Bonds:
AA+ Aa1 2,000 (Duke University Project), Series C, 6.75% due 10/01/2021 2,175
AAA NR* 900 Refunding (Elon College Project), 6.375% due 1/01/2007 (d) 976
</TABLE>
Merrill Lynch North Carolina Municipal Bond Fund
July 31, 1998
<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 HFA, Revenue Bonds:
AA Aa $2,720 AMT, Series V, 6.80% due 9/01/2025 $ 2,887
AA Aa 660 Series U, 6.70% due 3/01/2018 705
North Carolina HFA, S/F Revenue Bonds:
AA Aa2 1,755 AMT, Series X, 6.70% due 9/01/2026 1,874
AA Aa2 1,940 Series W, 6.50% due 3/01/2018 2,076
AAA Aaa 1,000 North Carolina Medical Care Commission, Health Care Facilities Revenue
Refunding Bonds (Novant Health Project), Series A, 5% due 10/01/2024 (c) 966
AAA Aaa 2,500 North Carolina Medical Care Commission, Health System Revenue Bonds
(Catholic Health East), Series C, 5% due 11/15/2028 (b) 2,418
North Carolina Medical Care Commission, Hospital Revenue Bonds:
AA- Aa3 2,150 (First Health of the Carolinas), 4.75% due 10/01/2026 1,987
AAA Aaa 750 Refunding (Alamance Health Services Inc. Project), Series A, 6.375%
due 8/15/2002 (a)(e) 825
AAA Aaa 1,180 Refunding (Alamance Regional Medical Center, Inc.), 5% due 8/15/2016 (a) 1,165
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 2,574
AA+ Aa 4,300 Raleigh, North Carolina, Combined Enterprise System Revenue Bonds, 5.125%
due 3/01/2022 4,285
AA- NR* 700 Raleigh-Durham, North Carolina, Airport Authority, Special Facility
Revenue Refunding Bonds (American Airlines), VRDN, Series A, 3.70% due
11/01/2015 (f) 700
AA Aa 800 University of North Carolina, Chapel Hill, Hospital Revenue Bonds (Board
of Governors), 6.375% due 2/15/2017 868
Puerto Rico--12.9%
BBB+ Baa1 2,500 Puerto Rico Electric Power Authority, Power Revenue Refunding Bonds,
Series EE, 4.75% due 7/01/2024 2,334
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 2,202
A Baa1 2,045 Puerto Rico Public Buildings Authority, Guaranteed Government Facilities
Revenue Bonds, Series B, 5.25% due 7/01/2021 2,040
Total Investments (Cost--$49,014)--100.9% 51,478
Liabilities in Excess of Other Assets--(0.9%) (460)
--------
Net Assets--100.0% $ 51,018
========
<FN>
(a)FSA Insured.
(b)AMBAC Insured.
(c)MBIA Insured.
(d)Connie Lee Insured.
(e)Prerefunded.
(f)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, 1998.
(g)FGIC Insured.
*Not Rated.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
Merrill Lynch North Carolina Municipal Bond Fund
July 31, 1998
FINANCIAL INFORMATION
</TABLE>
<TABLE>
Statement of Assets and Liabilities as of July 31, 1998
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$49,014,076) (Note 1a) $ 51,477,672
Cash 42,398
Receivables:
Interest $ 774,794
Beneficial interest sold 67,291 842,085
------------
Prepaid registration fees and other assets (Note 1e) 933
------------
Total assets 52,363,088
------------
Liabilities: Payables:
Securities purchased 1,162,198
Beneficial interest redeemed 55,875
Dividends to shareholders (Note 1f) 34,910
Investment adviser (Note 2) 25,459
Distributor (Note 2) 18,489 1,296,931
------------
Accrued expenses and other liabilities 47,945
------------
Total liabilities 1,344,876
------------
Net Assets: Net assets $ 51,018,212
============
Net Assets Class A Shares of beneficial interest, $.10 par value,
Consist of: unlimited number of shares authorized $ 79,542
Class B Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 338,016
Class C Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 22,960
Class D Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 23,016
Paid-in capital in excess of par 47,481,011
Undistributed realized capital gains on investments--net 610,071
Unrealized appreciation on investments--net 2,463,596
------------
Net assets $ 51,018,212
============
Net Asset Value: Class A--Based on net assets of $8,753,506 and 795,422 shares
of beneficial interest outstanding $ 11.00
============
Class B--Based on net assets of $37,204,274 and 3,380,162 shares
of beneficial interest outstanding $ 11.01
============
Class C--Based on net assets of $2,526,608 and 229,595 shares
of beneficial interest outstanding $ 11.00
============
Class D--Based on net assets of $2,533,824 and 230,162 shares
of beneficial interest outstanding $ 11.01
============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch North Carolina Municipal Bond Fund
July 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended
July 31, 1998
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 2,845,716
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 284,947
Account maintenance and distribution fees--Class B (Note 2) 192,626
Professional fees 56,761
Accounting services (Note 2) 43,764
Printing and shareholder reports 41,108
Transfer agent fees--Class B (Note 2) 19,951
Account maintenance and distribution fees--Class C (Note 2) 13,672
Custodian fees 4,976
Pricing fees 4,350
Registration fees (Note 1e) 3,690
Transfer agent fees--Class A (Note 2) 3,690
Trustees' fees and expenses 2,942
Account maintenance fees--Class D (Note 2) 2,266
Amortization of organization expenses (Note 1e) 1,550
Transfer agent fees--Class C (Note 2) 1,142
Transfer agent fees--Class D (Note 2) 955
Other 2,597
------------
Total expenses 680,987
------------
Investment income--net 2,164,729
------------
Realized & Realized gain on investments--net 1,537,021
Unrealized Gain Change in unrealized appreciation on investments--net (930,814)
(Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 2,770,936
(Notes 1b, 1d & 3): ============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch North Carolina Municipal Bond Fund
July 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year
Ended July 31,
Increase (Decrease) in Net Assets: 1998 1997
<S> <S> <C> <C>
Operations: Investment income--net $ 2,164,729 $ 2,465,986
Realized gain on investments--net 1,537,021 1,451,500
Change in unrealized appreciation on investments--net (930,814) 1,158,014
------------ ------------
Net increase in net assets resulting from operations 2,770,936 5,075,500
------------ ------------
Dividends & Investment income--net:
Distributions to Class A (400,953) (383,781)
Shareholders Class B (1,571,462) (1,906,705)
(Note 1f): Class C (90,652) (77,565)
Class D (101,662) (97,935)
Realized gain on investments--net:
Class A (2,557) --
Class B (11,105) --
Class C (640) --
Class D (602) --
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (2,179,633) (2,465,986)
------------ ------------
Beneficial Net decrease in net assets derived from beneficial interest
Interest transactions (3,435,751) (7,677,756)
Transactions ------------ ------------
(Note 4):
Net Assets: Total decrease in net assets (2,844,448) (5,068,242)
Beginning of year 53,862,660 58,930,902
------------ ------------
End of year $ 51,018,212 $ 53,862,660
============ ============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch North Carolina Municipal Bond Fund
July 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements Class A
For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 10.87 $ 10.36 $ 10.29 $ 10.19 $ 10.67
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .50 .51 .51 .54 .54
Realized and unrealized gain (loss) on
investments--net .13 .51 .07 .10 (.42)
-------- -------- -------- -------- --------
Total from investment operations .63 1.02 .58 .64 .12
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.50) (.51) (.51) (.54) (.54)
Realized gain on investments--net --++ -- -- -- --
In excess of realized gain on
investments--net -- -- -- -- (.06)
-------- -------- -------- -------- --------
Total dividends and distributions (.50) (.51) (.51) (.54) (.60)
-------- -------- -------- -------- --------
Net asset value, end of year $ 11.00 $ 10.87 $ 10.36 $ 10.29 $ 10.19
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 5.99% 10.17% 5.76% 6.60% 1.11%
Return:* ======== ======== ======== ======== ========
Ratios to Expenses, net of reimbursement .90% .80% .75% .71% .50%
Average ======== ======== ======== ======== ========
Net Assets: Expenses .90% .88% .90% .93% .96%
======== ======== ======== ======== ========
Investment income--net 4.59% 4.89% 4.92% 5.43% 5.14%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 8,753 $ 8,542 $ 8,043 $ 9,256 $ 11,071
Data: ======== ======== ======== ======== ========
Portfolio turnover 125.23% 94.59% 90.22% 52.33% 74.35%
======== ======== ======== ======== ========
<FN>
*Total investment returns exclude the effects of sales loads.
++Amount is less than $.01 per share.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch North Carolina Municipal Bond Fund
July 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class B
For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 10.88 $ 10.36 $ 10.29 $ 10.19 $ 10.67
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .45 .46 .46 .49 .49
Realized and unrealized gain (loss) on
investments--net .13 .52 .07 .10 (.42)
-------- -------- -------- -------- --------
Total from investment operations .58 .98 .53 .59 .07
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.45) (.46) (.46) (.49) (.49)
Realized gain on investments--net --++ -- -- -- --
In excess of realized gain on
investments--net -- -- -- -- (.06)
-------- -------- -------- -------- --------
Total dividends and distributions (.45) (.46) (.46) (.49) (.55)
-------- -------- -------- -------- --------
Net asset value, end of year $ 11.01 $ 10.88 $ 10.36 $ 10.29 $ 10.19
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 5.45% 9.71% 5.21% 6.06% .60%
Return:* ======== ======== ======== ======== ========
Ratios to Expenses, net of reimbursement 1.41% 1.31% 1.26% 1.22% 1.01%
Average ======== ======== ======== ======== ========
Net Assets: Expenses 1.41% 1.39% 1.41% 1.44% 1.46%
======== ======== ======== ======== ========
Investment income--net 4.08% 4.39% 4.41% 4.91% 4.64%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands). $ 37,204 $ 41,137 $ 47,236 $ 49,978 $ 50,664
Data: ======== ======== ======== ======== ========
Portfolio turnover 125.23% 94.59% 90.22% 52.33% 74.35%
======== ======== ======== ======== ========
<FN>
*Total investment returns exclude the effects of sales loads.
++Amount is less than $.01 per share.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch North Carolina Municipal Bond Fund
July 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
Class C
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. For the Year 1994++ to
Ended July 31, July 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.87 $ 10.36 $ 10.28 $ 9.80
Operating -------- -------- -------- --------
Performance: Investment income--net .44 .45 .45 .37
Realized and unrealized gain on investments--net .13 .51 .08 .48
-------- -------- -------- --------
Total from investment operations .57 .96 .53 .85
-------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.44) (.45) (.45) (.37)
Realized gain on investments--net --++++ -- -- --
-------- -------- -------- --------
Total dividends and distributions (.44) (.45) (.45) (.37)
-------- -------- -------- --------
Net asset value, end of period $ 11.00 $ 10.87 $ 10.36 $ 10.28
======== ======== ======== ========
Total Investment Based on net asset value per share 5.35% 9.50% 5.20% 8.87%+++
Return:** ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 1.51% 1.41% 1.37% 1.37%*
Net Assets: ======== ======== ======== ========
Expenses 1.51% 1.49% 1.51% 1.57%*
======== ======== ======== ========
Investment income--net 3.98% 4.28% 4.29% 4.67%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 2,527 $ 2,052 $ 1,772 $ 713
Data: ======== ======== ======== ========
Portfolio turnover 125.23% 94.59% 90.22% 52.33%
======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of operations.
++++Amount is less than $.01 per share.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch North Carolina Municipal Bond Fund
July 31, 1998
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class D
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. For the Year 1994++ to
Ended July 31, July 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.88 $ 10.37 $ 10.29 $ 9.80
Operating -------- -------- -------- --------
Performance: Investment income--net .49 .50 .50 .41
Realized and unrealized gain on investments--net .13 .51 .08 .49
-------- -------- -------- --------
Total from investment operations .62 1.01 .58 .90
-------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.49) (.50) (.50) (.41)
Realized gain on investments--net --++++ -- -- --
-------- -------- -------- --------
Total dividends and distributions (.49) (.50) (.50) (.41)
-------- -------- -------- --------
Net asset value, end of period $ 11.01 $ 10.88 $ 10.37 $ 10.29
======== ======== ======== ========
Total Investment Based on net asset value per share 5.88% 10.05% 5.75% 9.39%+++
Return:** ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 1.00% .90% .85% .85%*
Net Assets: ======== ======== ======== ========
Expenses 1.00% .98% 1.00% 1.05%*
======== ======== ======== ========
Investment income--net 4.49% 4.79% 4.81% 5.28%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 2,534 $ 2,132 $ 1,880 $ 1,377
Data: ======== ======== ======== ========
Portfolio turnover 125.23% 94.59% 90.22% 52.33%
======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of operations.
++++Amount is less than $.01 per share.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch North Carolina Municipal Bond Fund
July 31, 1998
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.
* Financial futures contracts--The Fund may purchase or sell
financial futures contracts and options on such futures contracts
for the purpose of hedging the market risk on existing securities or
the intended purchase of securities. Futures contracts are contracts
for delayed delivery of securities at a specific future date and at
a specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to
the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin
and are recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss equal
to the difference between the value of the contract at the time it
was opened and the value at the time it was closed.
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income is recognized on the accrual
basis. Discounts and market premiums are amortized into interest
income. Realized gains and losses on security transactions are
determined on the identified cost basis.
(e) Deferred organization expenses and prepaid registration fees--
Deferred organization expenses are charged to expense on a straight-
line basis over a period not exceeding five years. 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.
Merrill Lynch North Carolina Municipal Bond Fund
July 31, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
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 Distribu-tion Plans with Merrill Lynch Funds
Distributor ("MLFD" or "Distributor"), a division of Princeton Funds
Distributor, Inc. ("PFD"), which is a wholly-owned subsidiary of
Merrill Lynch Group, Inc.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee based upon the average daily
value of the Fund's net assets at the following annual rates: 0.55%
of the Fund's average daily net assets not exceeding $500 million;
0.525% of average daily net assets in excess of $500 million but not
exceeding $1 billion; and 0.50% of average daily net assets in
excess of $1 billion.
Pursuant to the Distribution Plans adopted by the Fund in accordance
with Rule 12b-1 under the Investment Company Act of 1940, the Fund
pays the Distributor ongoing account maintenance and distribution
fees. The fees are accrued daily and paid monthly at annual rates
based upon the aver-age 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, 1998, MLFD earned underwriting discounts
and MLPF&S earned dealer concessions on sales of the Fund's Class A
and Class D Shares as follows:
MLFD MLPF&S
Class A $173 $2,357
Class D $436 $5,539
For the year ended July 31, 1998, MLPF&S received contingent
deferred sales charges of $42,567 and $219 relating to transactions
in Class B and Class C Shares, respectively.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of FAM, PSI, FDS, PFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended July 31, 1998 were $63,104,109 and $65,119,238,
respectively.
Net realized gains for the year ended July 31, 1998 and unrealized
gains as of July 31, 1998 were as follows:
Realized Unrealized
Gains Gains
Long-term investments. $ 1,537,021 $ 2,463,596
----------- -----------
Total $ 1,537,021 $ 2,463,596
=========== ===========
As of July 31, 1998, net unrealized appreciation for Federal income
tax purposes aggregated $2,463,596, of which $2,521,920 was related
to appreciated securities and $58,324 was related to depreciated
securities. The aggregate cost of investments at July 31, 1998 for
Federal income tax purposes was $49,014,076.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest
transactions was $3,435,751 and $7,677,756 for the years ended July
31, 1998 and July 31, 1997, respectively.
Merrill Lynch North Carolina Municipal Bond Fund
July 31, 1998
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
Shares sold 124,471 $ 1,355,634
Shares issued to share-
holders in reinvestment of
dividends and distributions 21,812 238,394
----------- -----------
Total issued 146,283 1,594,028
Shares redeemed (136,396) (1,489,167)
----------- -----------
Net increase 9,887 $ 104,861
=========== ===========
Class A Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 270,339 $ 2,840,283
Shares issued to share-
holders 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 B Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
Shares sold 435,471 $ 4,752,873
Shares issued to share-
holders in reinvestment of
dividends and distributions 75,510 825,183
----------- -----------
Total issued 510,981 5,578,056
Automatic conversion of
shares (4,284) (57,714)
Shares redeemed (908,721) (9,881,981)
----------- -----------
Net decrease (402,024) $(4,361,639)
=========== ===========
Class B Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 433,279 $ 4,563,112
Shares issued to share-
holders 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 C Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
Shares sold 70,224 $ 764,628
Shares issued to share-
holders in reinvestment of
dividends and distributions 3,214 35,146
----------- -----------
Total issued 73,438 799,774
Shares redeemed (32,508) (355,671)
----------- -----------
Net increase 40,930 $ 444,103
=========== ===========
Class C Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 55,606 $ 588,031
Shares issued to share-
holders 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 D Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
Shares sold 53,147 $ 573,421
Automatic conversion of
shares 4,284 57,714
Shares issued to share-
holders in reinvestment of
dividends and distributions 4,392 48,065
----------- -----------
Total issued 61,823 679,200
Shares redeemed (27,648) (302,276)
----------- -----------
Net increase 34,175 $ 376,924
=========== ===========
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 share-
holders 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
=========== ===========
Merrill Lynch North Carolina Municipal Bond Fund
July 31, 1998
<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, 1998, 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 five-year period
then ended. These financial statements and the financial highlights
are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the
financial statements and the financial highlights are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. Our proce-dures included confirmation of securities
owned at July 31, 1998 by correspondence with the custodian and
broker. 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, 1998, 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 8, 1998
</AUDIT-REPORT>
Merrill Lynch North Carolina Municipal Bond Fund
July 31, 1998
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
Hugh T. Hurley III, Vice President
Kenneth A. Jacob, 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
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
