MERRILL LYNCH
NORTH CAROLINA
MUNICIPAL
BOND FUND
[FUND LOGO]
STRATEGIC
Performance
Semi-Annual Report
January 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 #16401 -- 1/98
[RECYCLE LOGO]
Printed on post-consumer recycled paper
Merrill Lynch North Carolina Municipal Bond Fund January 31, 1998
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the six months ended January 31, 1998, long-term bond yields
declined to recent historic lows. Prior to late October, the ongoing
positive combination of moderate economic growth and low inflation had
allowed interest rates to gradually move lower. During the last three
months, however, the decline in interest rates was driven more by the
continued turmoil in Asian equity markets than by fundamental
concerns. A significant "flight to quality" has benefited the US
Treasury bond market, particularly longer-maturity US Treasury bonds,
as foreign investors have sought safe haven in the relative stability
of US financial markets. Over the six months ended January 31, 1998,
US Treasury bond yields declined approximately 50 basis points (0.50%)
to 5.81%.
Without the ability to benefit from the tax advantage inherent in
municipal bonds, foreign investors have not participated in the tax-
exempt market. Consequently, municipal bond yields have not declined
dramatically as have taxable US Treasury securities. Long-term
municipal revenue bond yields, as measured by the Bond Buyer Revenue
Index, declined only 15 basis points to end the six-month period ended
January 31, 1998 at 5.33%. Nevertheless, tax-exempt bond yields have
not reached these levels since the mid-1970s.
The increase in new municipal bond issuance over the past six months
has also prevented the tax-exempt bond market from more closely
mirroring the yield declines exhibited by its taxable counterpart.
During the last six months, over $120 billion in new long-term
municipal bonds were underwritten, an increase of over 30% compared to
the same six-month period one year ago. As interest rates have
continued to decline in recent months, new tax-exempt bond issuance
has remained strong. Over $60 million in new long-term municipal
securities were issued during the last three months, an increase of
over 20% compared to the same three-month period ended January 31,
1997. During the past month, over $16 billion in new long-term
municipal securities were underwritten, representing an increase of
over 40% compared to the January 1997 level.
In our opinion, the recent correction in world equity markets has
enhanced the near-term prospects for continued low, if not declining,
interest rates in the United States. It is likely that the recent
correction will result in slower US domestic growth in the coming
months. This decline should be generated in part by reduced US export
growth. Additionally, some decline in consumer spending can also be
expected because of reduced consumer confidence. Perhaps more
importantly, it is likely that, barring a dramatic and unexpected
resurgence in domestic growth, the Federal Reserve Board will be
unwilling to raise interest rates until the full impact of the equity
market's corrections can be established.
All of these factors suggest that over the near term, interest rates,
including tax-exempt bond yields, are unlikely to rise by any
appreciable amount. It is probable that municipal bond yields will
remain under some relative pressure because of continued strong new-
issue supply. However, the recent pace of municipal bond issuance is
likely to be unsustainable. 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 of 1998 total municipal bond issuance are
presently in the $195 billion -- $220 billion range. These estimates
suggest that recent supply pressures are likely to abate somewhat next
year, or at least exert only minimal technical pressure during 1998.
Additionally, municipal bond investors received approximately $23
billion in January coupon payments, bond maturities and proceeds from
early redemptions, which should serve to intensify investor demand in
the near future. With tax-exempt bond yields at already attractive
yield ratios relative to US Treasury bonds (approximately 90% at the
end of December 1997), any further pressure on the municipal market
may well represent an attractive investment opportunity.
Portfolio Strategy
We adopted a slightly defensive investment strategy going into the
second half of 1997. We believed that economic growth would reappear
and that the Federal Reserve Board would have to 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
securities in the US Treasury bond market. In response to the Asian
financial crisis and the continued low domestic inflationary
environment, we shifted Merrill Lynch North Carolina Municipal Bond
Fund toward a more aggressive strategy by early November 1997.
During the six months ended January 31, 1998, new issuance was just
over $1.7 billion in the North Carolina tax-exempt bond market. This
represented a decrease of approximately 5% compared to the same period
a year ago. Additionally, the majority of new issuance in North
Carolina was dominated by current coupons and lesser call protection,
which would not enhance the Fund's overall structure.
Looking ahead, we expect to maintain the Fund's fully invested
position. We believe that interest rates will remain in a narrow
trading range. We plan to use periods of higher interest rates to
structure the portfolio more aggressively. However, an anticipated
lack of new issuance in North Carolina may curtail our ability to
execute this strategy.
In Conclusion
We appreciate your ongoing interest in Merrill Lynch North Carolina
Municipal Bond Fund, and we look forward to serving your investment
needs in the months and years to come.
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
February 27, 1998
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 (frontend
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
1/31/98 10/31/97 1/31/97 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $11.03 $10.85 $10.46 + 5.45% +1.66%
Class B Shares* 11.03 10.85 10.46 + 5.45 +1.66
Class C Shares* 11.03 10.85 10.46 + 5.45 +1.66
Class D Shares* 11.03 10.85 10.46 + 5.45 +1.66
Class A Shares -- Total Return* +10.55(1) +2.85(2)
Class B Shares -- Total Return* + 9.99(3) +2.72(4)
Class C Shares -- Total Return* + 9.88(5) +2.70(6)
Class D Shares -- Total Return* +10.44(7) +2.82(8)
Class A Shares -- Standardized 30-day Yield 3.90%
Class B Shares -- Standardized 30-day Yield 3.55%
Class C Shares -- Standardized 30-day Yield 3.45%
Class D Shares -- Standardized 30-day Yield 3.80%
* 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 $0.507 per share ordinary income dividends.
(2) Percent change includes reinvestment of $0.128 per share ordinary income dividends.
(3) Percent change includes reinvestment of $0.453 per share ordinary income dividends.
(4) Percent change includes reinvestment of $0.114 per share ordinary income dividends.
(5) Percent change includes reinvestment of $0.442 per share ordinary income dividends.
(6) Percent change includes reinvestment of $0.112 per share ordinary income dividends.
(7) Percent change includes reinvestment of $0.496 per share ordinary income dividends.
(8) Percent change includes reinvestment of $0.125 per share ordinary income dividends.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class A Shares
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
9/25/92 -- 12/31/92 $10.00 $10.16 -- $0.138 + 3.00%
1993 10.16 10.90 -- 0.616 +13.62
1994 10.90 9.63 -- 0.540 - 6.78
1995 9.63 10.78 -- 0.535 +17.88
1996 10.78 10.51 -- 0.511 + 2.38
1997 10.51 10.97 -- 0.510 + 9.48
1/1/98 -- 1/31/98 10.97 11.03 -- 0.034 + 0.94
Total $2.884
Cumulative total return as of 1/31/98: +45.50%**
* 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
1997 10.51 10.97 -- 0.456 + 8.93
1/1/98 -- 1/31/98 10.97 11.03 -- 0.030 + 0.89
Total $2.603
Cumulative total return as of 1/31/98: +41.62%**
* 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
1997 10.51 10.97 -- 0.445 + 8.82
1/1/98 -- 1/31/98 10.97 11.03 -- 0.030 + 0.88
Total $1.489
Cumulative total return as of 1/31/98: +29.91%**
* 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
1997 10.51 10.97 -- 0.500 + 9.37
1/1/98 -- 1/31/98 10.97 11.03 -- 0.034 + 0.93
Total $1.663
Cumulative total return as of 1/31/98: +32.08%**
* Figures may include short-term capital gains distributions.
** Figures do not include sales charge; results would be lower if sales charge was included.
</TABLE>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/97 +9.48% +5.10%
Five Years Ended 12/31/97 +6.95 +6.08
Inception (9/25/92)
through 12/31/97 +7.19 +6.36
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/97 +8.93% +4.93%
Five Years Ended 12/31/97 +6.42 +6.42
Inception (9/25/92)
through 12/31/97 +6.65 +6.65
* Maximum contingent deferred sales charge is 4% and is reduced
to 0% after 4 years.
** Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 12/31/97 +8.82% +7.82%
Inception (10/21/94)
through 12/31/97 +8.24 +8.24
* Maximum contingent deferred sales charge is 1% and is reduced
to 0% after 1 year.
** Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 12/31/97 +9.37% +5.00%
Inception (10/21/94)
through 12/31/97 +8.79 +7.40
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
<TABLE>
<CAPTION>
Merrill Lynch North Carolina Municipal Bond Fund January 31, 1998
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <C> <C> <C> <C>
North Carolina -- 85.2%
AA Aa3 $2,250 Charlotte-Mecklenberg Hospital Authority, North Carolina, Health
Care System Revenue Bonds, Series A, 5.875% due 1/15/2026 $2,392
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 536
AAA Aaa 1,000 Cumberland County, North Carolina, COP (Civic Center Project), Series A,
6.40% due 12/01/2024 (b) 1,120
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 1,625
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 3,900
AAA Aaa 1,000 Morganton, North Carolina, Water and Sewer Bonds, UT, 5.70% due 6/01/2013
(g) 1,079
AAA Aaa 2,500 New Hanover County, North Carolina, Hospital Revenue Bonds (New Hanover
Regional Medical Center Project), 5.75% due 10/01/2026 (b) 2,666
AAA Aaa 2,000 North Carolina Eastern Municipal Power Agency, Power System Revenue
Refunding Bonds, Series B, 5.875% due 1/01/2021 (c) 2,155
North Carolina Educational Facilities, Finance Agency Revenue Bonds:
AA+ Aa1 2,000 (Duke University Project), Series C, 6.75% due 10/01/2021 2,196
AAA NR* 900 Refunding (Elon College Project), 6.375% due 1/01/2007 (d) 985
North Carolina HFA, Revenue Bonds:
AA Aa 2,720 AMT, Series V, 6.80% due 9/01/2025 2,896
AA Aa 660 Series U, 6.70% due 3/01/2018 708
North Carolina HFA, S/F Revenue Bonds:
AA Aa2 1,755 AMT, Series X, 6.70% due 9/01/2026 1,877
AA Aa2 1,940 Series W, 6.50% due 3/01/2018 2,082
North Carolina Medical Care Commission, Hospital Revenue Bonds:
AA Aa3 1,500 (Carolina MediCorp. Project), 6% due 5/01/2021 1,562
AA Aa3 2,200 (Duke University Hospital Project), Series C, 5.25% due 6/01/2026 2,218
AAA Aaa 750 Refunding (Alamance Health Services Inc. Project), Series A, 6.375% due
8/15/2020 (a) 822
A+ A1 2,000 (Rex Hospital Project), 6.25% due 6/01/2017 2,160
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 2,604
AA+ Aa 4,550 Raleigh, North Carolina, Combined Enterprise System Revenue Bonds, 5.125%
due 3/01/2022 4,567
Raleigh-Durham, North Carolina, Airport Authority, Special Facility Revenue
Refunding Bonds (American Airlines), VRDN (f):
A1+ NR* 900 Series A, 3.65% due 11/01/2015 900
A1+ NR* 1,100 Series B, 3.65% due 11/01/2015 1,100
A - A 700 Shelby, North Carolina, Combined Producing Facilities System Revenue Bonds
(Capital Improvement), 6.625% due 6/01/2002 (e) 785
AA Aa3 800 University of North Carolina, Chapel Hill, Hospital Revenue Bonds (Board
of Governors), 6.375% due 2/15/2017 870
Puerto Rico -- 14.0%
BBB+ Baa1 1,000 Puerto Rico Electric Power Authority, Power Revenue Refunding Bonds, Series
U, 6% due 7/01/2014 1,081
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 2,213
AAA Aaa 1,500 Puerto Rico Municipal Finance Agency, Series A, UT, 5.50% due 7/01/2021 (a) 1,566
AAA Aaa 2,000 Puerto Rico Public Buildings Authority, Guaranteed Government Facilities
Revenue Bonds, Series A, 6.25% due 7/01/2012 (b) 2,350
----------
Total Investments (Cost -- $47,997) -- 99.2% 51,015
Other Assets Less Liabilities -- 0.8% 423
----------
Net Assets -- 100.0% $51,438
==========
(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 January 31, 1998.
(g) FGIC Insured.
* Not Rated.
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
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of January 31, 1998
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $47,997,401)(Note 1a) $51,015,035
Cash 44,729
Receivables:
Interest $715,291
Beneficial interest sold 104,206 819,497
------------
Deferred organization expenses (Note 1e) 1,550
Prepaid registration fees and other assets (Note 1e) 1,453
------------
Total assets 51,882,264
------------
Liabilities: Payables:
Beneficial interest redeemed 298,578
Dividends to shareholders (Note 1f) 35,237
Investment adviser (Note 2) 24,143
Distributor (Note 2) 17,697 375,655
------------
Accrued expenses and other liabilities 68,573
------------
Total liabilities 444,228
------------
Net Assets: Net assets $51,438,036
============
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited number
Consist of: of shares authorized $79,594
Class B Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 347,284
Class C Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 20,536
Class D Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized 18,831
Paid-in capital in excess of par 47,774,503
Undistributed realized capital gains on investments -- net (Note 5) 179,654
Unrealized appreciation on investments -- net 3,017,634
------------
Net assets $51,438,036
============
Net Asset Value: Class A -- Based on net assets of $8,779,892 and 795,937 shares of
beneficial interest outstanding $11.03
============
Class B -- Based on net assets of $38,315,107 and 3,472,841 shares of
beneficial interest outstanding $11.03
============
Class C -- Based on net assets of $2,265,206 and 205,362 shares of
beneficial interest outstanding $11.03
============
Class D -- Based on net assets of $2,077,831 and 188,306 shares of
beneficial interest outstanding $11.03
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Six Months Ended
January 31, 1998
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned $1,450,891
(Note 1d):
Expenses: Investment advisory fees (Note 2) $144,507
Account maintenance and distribution fees -- Class B (Note 2) 98,539
Professional fees 28,622
Accounting services (Note 2) 26,075
Printing and shareholder reports 15,980
Transfer agent fees -- Class B (Note 2) 11,682
Account maintenance and distribution fees -- Class C (Note 2) 6,515
Custodian fees 2,791
Pricing fees 2,333
Transfer agent fees -- Class A (Note 2) 2,184
Registration fees (Note 1e) 1,637
Trustees fees and expenses 1,479
Account maintenance fees -- Class D (Note 2) 1,077
Amortization of organization expenses (Note 1e) 771
Transfer agent fees -- Class C (Note 2) 627
Transfer agent fees -- Class D (Note 2) 533
Other 1,308
------------
Total expenses 346,660
------------
Investment income -- net 1,104,231
------------
Realized & Realized gain on investments -- net 1,106,604
Unrealized Change in unrealized appreciation on investments -- net (376,776)
Gain (Loss) on ------------
Investments -- Net Net Increase in Net Assets Resulting from Operations $1,834,059
(Notes 1b, 1d & 3): ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
Increase (Decrease) in Net Assets: Jan. 31, 1998 July 31, 1997
<S> <C> <C> <C>
Operations: Investment income -- net $1,104,231 $2,465,986
Realized gain on investments -- net 1,106,604 1,451,500
Change in unrealized appreciation on investments -- net (376,776) 1,158,014
------------ ------------
Net increase in net assets resulting from operations 1,834,059 5,075,500
------------ ------------
Dividends & Investment income -- net:
Distributions to Class A (203,194) (383,781)
Shareholders Class B (808,929) (1,906,705)
(Note 1f): Class C (43,497) (77,565)
Class D (48,611) (97,935)
Realized gain on investments -- net:
Class A (2,557) --
Class B (11,105) --
Class C (640) --
Class D (603) --
------------ ------------
Net decrease in net assets resulting from dividends and distributions
to shareholders (1,119,136) (2,465,986)
------------ ------------
Beneficial Interest Net decrease in net assets derived from beneficial interest transactions (3,139,547) (7,677,756)
Transactions ------------ ------------
(Note 4):
Net Assets: Total decrease in net assets (2,424,624) (5,068,242)
Beginning of period 53,862,660 58,930,902
------------ ------------
End of period $51,438,036 $53,862,660
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Class A
For the
Six
The following per share data and ratios have been derived Months
from information provided in the financial statements. Ended
Jan. 31, For the Year Ended July 31,
1998 1997 1996 1995 1994
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.87 $10.36 $10.29 $10.19 $10.67
Operating --------- --------- --------- --------- ---------
Performance: Investment income -- net .25 .51 .51 .54 .54
Realized and unrealized gain (loss) on
investments -- net .16 .51 .07 .10 (.42)
--------- --------- --------- --------- ---------
Total from investment operations .41 1.02 .58 .64 .12
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income -- net (.25) (.51) (.51) (.54) (.54)
Realized gain on investments -- net --+ -- -- -- --
In excess of realized gain on
investments -- net -- -- -- -- (.06)
--------- --------- --------- --------- ---------
Total dividends and distributions (.25) (.51) (.51) (.54) (.60)
--------- --------- --------- --------- ---------
Net asset value, end of period $11.03 $10.87 $10.36 $10.29 $10.19
========= ========= ========= ========= =========
Total Investment Based on net asset value per share 3.90%++++ 10.17% 5.76% 6.60% 1.11%
Return:** ========= ========= ========= ========= =========
Ratios to Average Expenses, net of reimbursement .91%* .80% .75% .71% .50%
Net Assets: ========= ========= ========= ========= =========
Expenses .91%* .88% .90% .93% .96%
========= ========= ========= ========= =========
Investment income -- net 4.61%* 4.89% 4.92% 5.43% 5.14%
========= ========= ========= ========= =========
Supplemental Net assets, end of period (in thousands) $8,780 $8,542 $8,043 $9,256 $11,071
Data: ========= ========= ========= ========= =========
Portfolio turnover 60.12% 94.59% 90.22% 52.33% 74.35%
========= ========= ========= ========= =========
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Amount is less than $.01 per share.
++++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Class B
For the
Six
The following per share data and ratios have been derived Months
from information provided in the financial statements. Ended
Jan. 31, For the Year Ended July 31,
1998 1997 1996 1995 1994
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.88 $10.36 $10.29 $10.19 $10.67
Operating --------- --------- --------- --------- ---------
Performance:
Investment income -- net .23 .46 .46 .49 .49
Realized and unrealized gain (loss) on
investments -- net .15 .52 .07 .10 (.42)
--------- --------- --------- --------- ---------
Total from investment operations .38 .98 .53 .59 .07
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income -- net (.23) (.46) (.46) (.49) (.49)
Realized gain on investments -- net --+ -- -- -- --
In excess of realized gain on
investments -- net -- -- -- -- (.06)
--------- --------- --------- --------- ---------
Total dividends and distributions (.23) (.46) (.46) (.49) (.55)
--------- --------- --------- --------- ---------
Net asset value, end of period $11.03 $10.88 $10.36 $10.29 $10.19
========= ========= ========= ========= =========
Total Investment Based on net asset value per share 3.53%++++ 9.71% 5.21% 6.06% .60%
Return:** ========= ========= ========= ========= =========
Ratios to Average Expenses, net of reimbursement 1.42%* 1.31% 1.26% 1.22% 1.01%
Net Assets: ========= ========= ========= ========= =========
Expenses 1.42%* 1.39% 1.41% 1.44% 1.46%
========= ========= ========= ========= =========
Investment income -- net 4.10%* 4.39% 4.41% 4.91% 4.64%
========= ========= ========= ========= =========
Supplemental Net assets, end of period (in thousands) $38,315 $41,137 $47,236 $49,978 $50,664
Data: ========= ========= ========= ========= =========
Portfolio turnover 60.12% 94.59% 90.22% 52.33% 74.35%
========= ========= ========= ========= =========
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Amount is less than $.01 per share.
++++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Class C
For the For the
Six Period
The following per share data and ratios have been derived Months Oct. 21,
from information provided in the financial statements. Ended For the Year 1994+ to
Jan. 31, Ended July 31, July 31,
1998 1997 1996 1995
Increase (Decrease) in Net Asset Value:
<S> <C> <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 .22 .45 .45 .37
Realized and unrealized gain on investments -- net .16 .51 .08 .48
-------- -------- -------- --------
Total from investment operations .38 .96 .53 .85
-------- -------- -------- --------
Less dividends and distributions:
Investment income -- net (.22) (.45) (.45) (.37)
Realized gain on investments -- net --++ -- -- --
-------- -------- -------- --------
Total dividends and distributions (.22) (.45) (.45) (.37)
-------- -------- -------- --------
Net asset value, end of period $11.03 $10.87 $10.36 $10.28
======== ======== ======== ========
Total Investment Based on net asset value per share 3.58%++++ 9.50% 5.20% 8.87%++++
Return:** ======== ======== ======== ========
Ratios to Expenses, net of reimbursement 1.52%* 1.41% 1.37% 1.37%*
Average ======== ======== ======== ========
Net Assets: Expenses 1.52%* 1.49% 1.51% 1.57%*
======== ======== ======== ========
Investment income -- net 4.01%* 4.28% 4.29% 4.67%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $2,265 $2,052 $1,772 $713
Data: ======== ======== ======== ========
Portfolio turnover 60.12% 94.59% 90.22% 52.33%
======== ======== ======== ========
* 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>
<TABLE>
<CAPTION>
Class D
For the For the
Six Period
The following per share data and ratios have been derived Months Oct. 21,
from information provided in the financial statements. Ended For the Year 1994+ to
Jan. 31, Ended July 31, July 31,
1998 1997 1996 1995
Increase (Decrease) in Net Asset Value:
<S> <C> <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 .25 .50 .50 .41
Realized and unrealized gain on investments -- net .15 .51 .08 .49
-------- -------- -------- --------
Total from investment operations .40 1.01 .58 .90
-------- -------- -------- --------
Less dividends and distributions:
Investment income -- net (.25) (.50) (.50) (.41)
Realized gain on investments -- net --++ -- -- --
-------- -------- -------- --------
Total dividends and distributions (.25) (.50) (.50) (.41)
-------- -------- -------- --------
Net asset value, end of period $11.03 $10.88 $10.37 $10.29
======== ======== ======== ========
Total Investment Based on net asset value per share 3.75%++++ 10.05% 5.75% 9.39%++++
Return:** ======== ======== ======== ========
Ratios to Expenses, net of reimbursement 1.01%* .90% .85% .85%*
Average ======== ======== ======== ========
Net Assets: Expenses 1.01%* .98% 1.00% 1.05%*
======== ======== ======== ========
Investment income -- net 4.51%* 4.79% 4.81% 5.28%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $2,078 $2,132 $1,880 $1,377
Data: ======== ======== ======== ========
Portfolio turnover 60.12% 94.59% 90.22% 52.33%
======== ======== ======== ========
* 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 January 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. These unaudited
financial statements reflect all adjustments which are, in the opinion
of management, necessary to a fair statement of the results for the
interim period presented. All such adjustments are of a normal
recurring nature. The Fund offers four classes of shares under the
Merrill Lynch Select 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 Merrill Lynch Funds Distributor, Inc. ("MLFD"
or "Distributor"), a wholly-owned subsidiary of Merrill Lynch Group,
Inc.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee based upon the average daily
value of the Fund's net assets at the following annual rates: 0.55% of
the Fund's average daily net assets not exceeding $500 million; 0.525%
of average daily net assets in excess of $500 million but not
exceeding $1 billion; and 0.50% of average daily net assets in excess
of $1 billion.
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 average daily net assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.25%
Class C 0.25% 0.35%
Class D 0.10% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co., also
provides account maintenance and distribution services to the Fund.
The ongoing account maintenance fee compensates the Distributor and
MLPF&S for providing account maintenance services to Class B, Class C
and Class D shareholders. The ongoing distribution fee compensates the
Distributor and MLPF&S for providing shareholder and distribution-
related services to Class B and Class C shareholders.
For the six months ended January 31, 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 $85 $1,180
Class D $164 $2,125
For the six months ended January 31, 1998, MLPF&S received contingent
deferred sales charges of $23,445 and $126 relating to transactions in
Class B and Class C Shares, respectively.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-owned
subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of FAM, PSI, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended January 31, 1998 were $30,141,840 and
$34,056,799, respectively.
Net realized and unrealized gains as of January 31, 1998 were as
follows:
Realized Unrealized
Gains Gains
Long-term investments $1,106,604 $3,017,634
------------ ------------
Total $1,106,604 $3,017,634
============ ============
As of January 31, 1998, net unrealized appreciation for Federal income
tax purposes aggregated $3,017,634, all of which related to
appreciated securities. The aggregate cost of investments at January
31, 1998 for Federal income tax purposes was $47,997,401.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest
transactions was $3,139,547 and $7,677,756 for the six months ended
January 31, 1998 and for the year ended July 31, 1997, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the
Six Months Ended Dollar
January 31, 1998 Shares Amount
Shares sold 76,443 $827,379
Shares issued to shareholders
in reinvestment of dividends
and distributions 11,359 123,421
------------ ------------
Total issued 87,802 950,800
Shares redeemed (77,400) (841,516)
------------ ------------
Net increase 10,402 $109,284
============ ============
Class A Shares for the Dollar
Year 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 B Shares for the Six Dollar
Months Ended January 31, 1998 Shares Amount
Shares sold 203,971 $2,212,058
Shares issued to shareholders
in reinvestment of dividends
and distributions 39,919 433,677
------------ ------------
Total issued 243,890 2,645,735
Automatic conversion
of shares (453) (5,013)
Shares redeemed (552,782) (5,985,832)
------------ ------------
Net decrease (309,345) $(3,345,110)
============ ============
Class B Shares for the Dollar
Year 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 C Shares for the Six Dollar
Months Ended January 31, 1998 Shares Amount
Shares sold 27,623 $299,065
Shares issued to shareholders
in reinvestment of dividends
and distributions 1,554 16,881
------------ ------------
Total issued 29,177 315,946
Shares redeemed (12,480) (135,343)
------------ ------------
Net increase 16,697 $180,603
============ ============
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 D Shares for the Six Dollar
Months Ended January 31, 1998 Shares Amount
Shares sold 10,224 $111,098
Automatic conversion of shares 453 5,013
Shares issued to shareholders
in reinvestment of dividends
and distributions 1,972 21,428
------------ ------------
Total issued 12,649 137,539
Shares redeemed (20,330) (221,863)
------------ ------------
Net decrease (7,681) $(84,324)
============ ============
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
============ ============
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.
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
