MERRILL LYNCH
NORTH CAROLINA
MUNICIPAL
BOND FUND
FUND LOGO
Annual Report
July 31, 1999
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, 1999
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the six months ended July 31, 1999, long-term bond yields
rose significantly. Steady US economic growth combined with
improvement in foreign economies, most notably Japan and Brazil, as
well as an inflation scare in early May put upward pressure on bond
yields throughout the period. Continued strong US employment growth,
particularly the decline in the US unemployment rate to 4.2% in
early June, was among the reasons the Federal Reserve Board cited
for raising short-term interest rates in late June. US Treasury bond
yields reacted by climbing above 6.15% by late June before improving
some-what to 6.10% by July 31, 1999. During the last six months,
yields on long-term US Treasury securities increased approximately
100 basis points (1.00%).
Long-term tax-exempt bond yields also rose during the last six
months. Until early May, the municipal bond market had been able to
withstand much of the upward pressure on bond yields. However,
investor concerns regarding ongoing US economic strength and the
fear of additional moves by the Federal Reserve Board eventually
pushed municipal bond yields higher throughout June and July. During
the period, the yields on long-term tax-exempt revenue bonds rose
almost 50 basis points to 5.65%, as measured by the Bond Buyer
Revenue Bond Index.
The ability of the tax-exempt bond market to withstand much of the
recent upward pressure on long-term fixed-income bond yields has
been a reflection of the continued strong technical position the
municipal bond market has enjoyed in recent quarters. During the
last six months, more than $120 billion in long-term municipal bonds
was underwritten, a decrease of more than 20% compared to the same
period a year ago. During the past three months, more than $60
billion in municipal bonds was underwritten. This quarterly issuance
represents a decline of nearly 25% compared to the same three-month
period in 1998.
Recently, the municipal supply position deteriorated even further.
Total issuance in July 1999 of $16.5 billion was more than 30% lower
than July 1998 levels. Additionally, in June and July, investors
received more than $40 billion in coupon income and proceeds from
bond maturities and early bond redemptions. These proceeds have
generated significant retail investor interest, easily absorbing the
recent diminished supply. This very favorable supply/demand position
allowed the tax-exempt bond market to outperform its taxable
counterpart in recent months.
However, the recent relative outperformance of the municipal bond
market has somewhat reduced the very attractive tax-exempt bond
yield ratios that were available at the end of 1998. In December
1998, long-term, uninsured municipal bond yields were higher than
those of their taxable counterparts. Historically, long-term tax-
exempt bond yields have been approximately 82%--85% of long-term US
Treasury bond yields. Municipal bond yields rose at a lower rate in
recent months than US Treasury bond yields, causing the yield ratio
to decline. At July 31, 1999, long-term municipal bond yields were
approximately 92% of their taxable counterparts. Current ratios,
while lower than those available at the end of 1998, still represent
historically attractive levels. We expect the municipal bond market
to maintain its strong technical position for the remainder of 1999.
Consequently, there appears to be little reason for the tax-exempt
bond market to underperform the taxable US Treasury bond market.
This suggests that the present bond yield ratio is likely to remain
stable in the coming months and a return to a ratio in excess of
100% of taxable Treasury securities is improbable.
Looking ahead, it appears to us that long-term municipal bond yields
will trade in a relatively tight range near current levels. Strong
US economic performance is being balanced by nearly negligible
inflation data, as well as improvements in productivity in both
manufacturing and service industries. Future moves by the Federal
Reserve Board have largely been discounted by bond markets and are
to a great extent reflected in present bond yields.
Any improvement in bond prices is likely to be contingent upon
weakening in both US employment growth and consumer spending. The
100 basis point rise in US Treasury bond yields seen thus far this
year is likely to negatively affect US economic growth. The US
housing market will be among the first sectors likely to be
affected, as some declines have already been evidenced because of
higher mortgage rates. We believe it is also unrealistic to expect
double-digit returns in US equity markets to continue indefinitely.
Much of the US consumer's wealth is tied to recent stock market
appreciation. Any slowing in these incredible growth rates is likely
to reduce consumer spending. These factors suggest that the worst of
the recent increase in bond yields has passed and stable, if not
slightly improving, bond prices may be expected.
Merrill Lynch North Carolina Municipal Bond Fund
July 31, 1999
Fiscal Year in Review
The Fund started the fiscal year ended July 31, 1999 fully invested
based on our expectations for steady economic growth and low
inflation. This scenario characterized the first six months of the
fiscal year. Therefore, we held a neutral-to-aggressive investment
posture for much of this period. We maintained the Fund's fully
invested position and structured the portfolio in an effort to
enable us to participate in any bond market rally, thus enhancing
the total return to shareholders. In addition, we carefully
monitored our call protection in order to seek to achieve ample tax-
exempt income for our shareholders for many years to come.
During the second half of the fiscal year, the combination of strong
growth and accelerating inflationary concerns caused the Federal
Reserve Board to raise short-term interest rates by 25 basis points.
Over the last few months of the fiscal year, we realized that both
growth and inflationary fears could negatively impact the bond
market, and we shifted our portfolio strategy. We adopted a
defensive position by reducing our exposure to the bond market and
by maintaining a cash reserve position of about 10%--15% of net
assets.
Looking ahead, we are seeking an opportune time to reenter the bond
market. Since long-term Treasury yields are now over 6% and long-
term municipal bonds are trading at approximately 95% of Treasury
issues (as compared to the historic average of between 85%--90%),
we are considering this opportunity to reinvest the Fund's cash
reserves at significantly higher yields than just a few months
earlier.
During the fiscal year ended July 31, 1999, our investment
strategies benefited the Fund's performance as the Fund had total
returns of +1.02%, +0.41%, +0.41% and +0.92% for Class A, Class B,
Class C and Class D Shares, respectively. (Complete performance
information can be found on pages 3--5 of this report to
shareholders.)
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,
(Terry K. Glenn)
Terry K. Glenn
President
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Hugh T. Hurley III)
Hugh T. Hurley III
Vice President and Portfolio Manager
September 7, 1999
Merrill Lynch North Carolina Municipal Bond Fund
July 31, 1999
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 7/31/99
<S> <C> <C> <C> <C>
ML North Carolina Municipal Bond Fund Class A Shares +1.02% -2.14% +49.94% 3.86%
ML North Carolina Municipal Bond Fund Class B Shares +0.41 -2.26 +44.84 3.51
ML North Carolina Municipal Bond Fund Class C Shares +0.41 -2.29 +32.66 3.41
ML North Carolina Municipal Bond Fund Class D Shares +0.92 -2.07 +36.04 3.76
<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 since inception dates are from 9/25/92 for Class A & Class B
Shares and from 10/21/94 for Class C & Class D Shares.
</TABLE>
Merrill Lynch North Carolina Municipal Bond Fund
July 31, 1999
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** 7/99
ML North Carolina Municipal Bond Fund++--
Class A Shares* $ 9,600 $14,396
ML North Carolina Municipal Bond Fund++--
Class B Shares* $10,000 $14,484
Lehman Brothers Municipal Bond
Index++++ $10,000 $15,379
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** 7/99
ML North Carolina Municipal Bond Fund++--
Class C Shares* $10,000 $13,266
ML North Carolina Municipal Bond Fund++--
Class D Shares* $ 9,600 $13,059
Lehman Brothers Municipal Bond
Index++++ $10,000 $14,235
[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 from 9/30/92 and in the Class C & Class D Shares' graph is from
10/31/94.
Past performance is not predictive of future performance.
Merrill Lynch North Carolina Municipal Bond Fund
July 31, 1999
PERFORMANCE DATA (concluded)
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/99 +1.07% -2.97%
Five Years Ended 6/30/99 +6.31 +5.45
Inception (9/25/92)
through 6/30/99 +6.15 +5.51
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/99 +0.56% -3.20%
Five Years Ended 6/30/99 +5.80 +5.80
Inception (9/25/92)
through 6/30/99 +5.61 +5.61
[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 6/30/99 +0.46% -0.48%
Inception (10/21/94)
through 6/30/99 +6.18 +6.18
[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 6/30/99 +0.88% -3.16%
Inception (10/21/94)
through 6/30/99 +6.72 +5.80
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
IMPORTANT TAX INFORMATION
All of the net investment income distributions paid monthly by
Merrill Lynch North Carolina Municipal Bond Fund during its taxable
year ended July 31, 1999 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 Long-Term
Date Date Income Capital Gains*
12/21/98 12/31/98 $.079542 $.218840
[FN]
*The entire distribution is subject to the 20% tax rate.
Please retain this information for your records.
Merrill Lynch North Carolina Municipal Bond Fund
July 31, 1999
PORTFOLIO ABBREVIATIONS
To simplify the listings of Merrill Lynch North Carolina Municipal
Bond Fund's portfolio holdings in the Schedule of Investments, we
have abbreviated the names of many of the securities according to
the list at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
GO General Obligation Bonds
HFA Housing Finance Agency
S/F Single-Family
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--92.3%
<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 $ 2,313
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 528
AAA Aaa 1,000 Cumberland County, North Carolina, COP (Civic Center Project),
Series A, 6.40% due 12/01/2004 (a)(g) 1,112
AAA Aaa 2,000 Fayetteville, North Carolina, Public Works Commission Revenue
Bonds, 5.10% due 3/01/2015 (e) 1,965
AAA Aaa 1,000 Gastonia, North Carolina, Combined Utilities System Revenue
Refunding Bonds, 4.75% due 5/01/2015 (f) 933
AAA Aa1 1,225 Greensboro, North Carolina, GO, Public Improvement, 4.75% due 4/01/2018 1,136
NR* A1 500 Halifax County, North Carolina, Industrial Facilities and Pollution
Control Financing Authority, Exempt Facilities (Westmoreland),
VRDN, 3.45% due 12/01/2019 (h) 500
NR* Baa1 1,500 Haywood County, North Carolina, Industrial Facilities and Pollution
Control Financing Authority Revenue Bonds (Champion International
Corporation Project), AMT, 6.25% due 9/01/2025 1,551
AAA Aaa 1,000 Johnston County, North Carolina, Finance Corporation, Installment
Payment Revenue Bonds (School and Museum Projects), 5.25% due 8/01/2021 (e) 972
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 3,753
AAA Aaa 500 Morganton, North Carolina, GO, Water and Sewer, 5.70% due 6/01/2013 (c) 522
AAA Aaa 1,500 New Hanover County, North Carolina, Hospital Revenue Bonds
(New Hanover Regional Medical Center Project), 5.75% due 10/01/2026 (a) 1,517
AAA Aaa 2,000 North Carolina Eastern Municipal Power Agency, Power System Revenue
Bonds, Series B, 5.875% due 1/01/2021 (f) 2,061
AA+ Aa1 2,000 North Carolina Educational Facilities Finance Agency Revenue Bonds
(Duke University Project), Series C, 6.75% due 10/01/2021 (i) 2,134
AAA NR* 900 North Carolina Educational Facilities Finance Agency, Revenue
Refunding Bonds (Elon College Project), 6.375% due 1/01/2007 (b) 957
North Carolina HFA, S/F Revenue Bonds:
AA Aa2 2,550 AMT, Series V, 6.80% due 9/01/2025 (d) 2,672
AA Aa2 1,655 AMT, Series X, 6.70% due 9/01/2026 1,742
AA Aa2 1,840 Series W, 6.50% due 3/01/2018 1,943
</TABLE>
Merrill Lynch North Carolina Municipal Bond Fund
July 31, 1999
<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>
AA Aa3 $ 2,000 North Carolina Medical Care Commission, Health Care Facilities
Revenue Bonds (Duke University Health System), Series B, 4.75% due 6/01/2021 $ 1,773
AA Aa3 2,500 North Carolina Medical Care Commission, Health Care Facilities
Revenue Refunding Bonds (Duke University Health System), Series A,
4.75% due 6/01/2028 2,172
NR* VMIG1++ 700 North Carolina Medical Care Commission, Hospital Revenue Refunding
Bonds (Lexington Memorial Hospital Project), VRDN, 3.35% due 4/01/2010 (h) 700
NR* A 2,375 North Carolina State Educational Assistance Authority Revenue Bonds
(Guaranteed Student Loan), AMT, Sub-Lien, Series C, 6.35% due 7/01/2016 2,456
AAA Aaa 1,000 North Carolina State, GO, Series A, 4.75% due 4/01/2015 961
AA Aa2 1,025 Orange Water and Sewer Authority, North Carolina, Water and Sewer System
Revenue Bonds, 5.25% due 7/01/2017 1,016
NR* P1 1,600 Person County, North Carolina, Industrial Facilities and Pollution
Control Financing Authority, Solid Waste Revenue Bonds (Carolina Power
and Light), VRDN, AMT, 3.45% due 11/01/2016 (h) 1,600
A1+ NR* 2,100 Raleigh Durham, North Carolina, Airport Authority, Special Facility
Revenue Refunding Bonds (American Airlines), VRDN, Series A, 3.35%
due 11/01/2015 (h) 2,100
AA Aa3 800 University of North Carolina, Chapel Hill, Hospital Revenue Bonds,
6.375% due 2/15/2002 (g) 856
AAA Aaa 1,575 University of North Carolina, System Pool Revenue Bonds, Series B,
4.50% due 10/01/2023 (f) 1,341
A1+ P1 500 Wake County, North Carolina, Industrial Facilities and Pollution Control
Financing Authority, Revenue Refunding Bonds (Carolina Power and Light
Company Project), VRDN, Series A, 3.40% due 6/15/2014 (h) 500
Puerto Rico--8.8%
BBB+ Baa1 2,250 Puerto Rico Electric Power Authority, Power Revenue Refunding Bonds,
Series EE, 4.75% due 7/01/2024 2,003
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 2,154
Total Investments (Cost--$47,469)--101.1% 47,943
Variation Margin on Financial Futures Contracts**--0.0% 17
Liabilities in Excess of Other Assets--(1.1%) (519)
--------
Net Assets--100.0% $ 47,441
========
<FN>
(a)AMBAC Insured.
(b)Connie Lee Insured.
(c)FGIC Insured.
(d)FNMA/GNMA Collateralized.
(e)FSA Insured.
(f)MBIA Insured.
(g)Prerefunded.
(h)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, 1999.
(i)All or a portion of security held as collateral in connection
with open financial futures contracts.
*Not Rated.
**Financial futures contracts sold as of July 31, 1999 were as
follows:
(in Thousands)
Number of Expiration Value
Contracts Issue Date (Notes 1a & 1b)
50 US Treasury Bonds September 1999 $ 5,748
--------
Total Financial Futures Contracts Sold
(Total Contract Price--$5,709) $ 5,748
========
++Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch North Carolina Municipal Bond Fund
July 31, 1999
<TABLE>
FINANCIAL INFORMATION
<CAPTION>
Statement of Assets and Liabilities as of July 31, 1999
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$47,468,835) (Note 1a) $ 47,943,135
Cash 172,242
Receivables:
Interest $ 610,276
Beneficial interest sold 67,805
Variation margin (Note 1b) 17,188 695,269
------------
Prepaid expenses and other assets 944
------------
Total assets 48,811,590
------------
Liabilities: Payables:
Securities purchased 985,062
Beneficial interest redeemed 196,580
Dividends to shareholders (Note 1f) 30,304
Investment adviser (Note 2) 23,142
Distributor (Note 2) 16,094 1,251,182
------------
Accrued expenses and other liabilities 119,397
------------
Total liabilities 1,370,579
------------
Net Assets: Net assets $ 47,441,011
============
Net Assets Class A Shares of beneficial interest, $.10 par value,
Consist of: unlimited number of shares authorized $ 87,841
Class B Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 317,619
Class C Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 23,223
Class D Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 29,514
Paid-in capital in excess of par 46,997,991
Accumulated distributions in excess of realized capital gains on
investments--net (Note 1f) (450,415)
Unrealized appreciation on investments--net 435,238
------------
Net assets $ 47,441,011
============
Net Asset Value: Class A--Based on net assets of $9,093,647 and 878,407 shares
of beneficial interest outstanding $ 10.35
============
Class B--Based on net assets of $32,886,527 and 3,176,191 shares
of beneficial interest outstanding $ 10.35
============
Class C--Based on net assets of $2,404,144 and 232,226 shares
of beneficial interest outstanding $ 10.35
============
Class D--Based on net assets of $3,056,693 and 295,144 shares
of beneficial interest outstanding $ 10.36
============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch North Carolina Municipal Bond Fund
July 31, 1999
<TABLE>
FINANCIAL INFORMATION (continued)
<CAPTION>
Statement of Operations
For the Year Ended
July 31, 1999
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 2,751,866
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 279,289
Account maintenance and distribution fees--Class B (Note 2) 180,557
Printing and shareholder reports 70,386
Professional fees 68,848
Accounting services (Note 2) 64,647
Transfer agent fees--Class B (Note 2) 18,227
Account maintenance and distribution fees--Class C (Note 2) 14,332
Pricing fees 4,807
Custodian fees 4,645
Transfer agent fees--Class A (Note 2) 3,818
Registration fees (Note 1e) 3,200
Account maintenance fees--Class D (Note 2) 3,197
Trustees' fees and expenses 2,952
Transfer agent fees--Class D (Note 2) 1,356
Transfer agent fees--Class C (Note 2) 1,201
Other 2,915
------------
Total expenses 724,377
------------
Investment income--net 2,027,489
------------
Realized & Realized gain on investments--net 361,280
Unrealized Gain Change in unrealized appreciation on investments--net (2,028,358)
(Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 360,411
(Notes 1b, 1d & 3): ============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch North Carolina Municipal Bond Fund
July 31, 1999
<TABLE>
FINANCIAL INFORMATION (continued)
<CAPTION>
Statements of Changes in Net Assets
For the Year
Ended July 31,
Increase (Decrease) in Net Assets: 1999 1998
<S> <S> <C> <C>
Operations: Investment income--net $ 2,027,489 $ 2,164,729
Realized gain on investments--net 361,280 1,537,021
Change in unrealized appreciation on investments--net (2,028,358) (930,814)
------------ ------------
Net increase in net assets resulting from operations 360,411 2,770,936
------------ ------------
Dividends & Investment income--net:
Distributions to Class A (398,414) (400,953)
Shareholders Class B (1,401,883) (1,571,462)
(Note 1f): Class C (90,249) (90,652)
Class D (136,943) (101,662)
Realized gain on investments--net:
Class A (165,829) (2,557)
Class B (701,906) (11,105)
Class C (44,088) (640)
Class D (59,528) (602)
In excess of realized gain on investments--net:
Class A (76,895) --
Class B (325,473) --
Class C (20,444) --
Class D (27,603) --
------------ ------------
Net decrease in net assets resulting from dividends
and distributions to shareholders (3,449,255) (2,179,633)
------------ ------------
Beneficial Net decrease in net assets derived from beneficial
Interest interest transactions (488,357) (3,435,751)
Transactions ------------ ------------
(Note 4):
Net Assets: Total decrease in net assets (3,577,201) (2,844,448)
Beginning of year 51,018,212 53,862,660
------------ ------------
End of year $ 47,441,011 $ 51,018,212
============ =============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch North Carolina Municipal Bond Fund
July 31, 1999
<TABLE>
FINANCIAL INFORMATION (continued)
<CAPTION>
Financial Highlights
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: 1999 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 11.00 $ 10.87 $ 10.36 $ 10.29 $ 10.19
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .47 .50 .51 .51 .54
Realized and unrealized gain (loss) on
investments--net (.35) .13 .51 .07 .10
-------- -------- -------- -------- --------
Total from investment operations .12 .63 1.02 .58 .64
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.47) (.50) (.51) (.51) (.54)
Realized gain on investments--net (.20) --++ -- -- --
In excess of realized gain on investments--net (.10) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.77) (.50) (.51) (.51) (.54)
-------- -------- -------- -------- --------
Net asset value, end of year $ 10.35 $ 11.00 $ 10.87 $ 10.36 $ 10.29
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 1.02% 5.99% 10.17% 5.76% 6.60%
Return:* ======== ======== ======== ======== ========
Ratios to Expenses, net of reimbursement 1.03% .90% .80% .75% .71%
Average ======== ======== ======== ======== ========
Net Assets: Expenses 1.03% .90% .88% .90% .93%
======== ======== ======== ======== ========
Investment income--net 4.39% 4.59% 4.89% 4.92% 5.43%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 9,094 $ 8,753 $ 8,542 $ 8,043 $ 9,256
Data: ======== ======== ======== ======== ========
Portfolio turnover 47.52% 125.23% 94.59% 90.22% 52.33%
======== ======== ======== ======== ========
<FN>
*Total investment returns exclude the effects of sales charges.
++Amount is less than $.01 per share.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch North Carolina Municipal Bond Fund
July 31, 1999
<TABLE>
FINANCIAL INFORMATION (continued)
<CAPTION>
Financial Highlights (continued)
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: 1999 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 11.01 $ 10.88 $ 10.36 $ 10.29 $ 10.19
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .42 .45 .46 .46 .49
Realized and unrealized gain (loss) on
investments--net (.36) .13 .52 .07 .10
-------- -------- -------- -------- --------
Total from investment operations .06 .58 .98 .53 .59
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.42) (.45) (.46) (.46) (.49)
Realized gain on investments--net (.20) --++ -- -- --
In excess of realized gain on investments--net (.10) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.72) (.45) (.46) (.46) (.49)
-------- -------- -------- -------- --------
Net asset value, end of year $ 10.35 $ 11.01 $ 10.88 $ 10.36 $ 10.29
======== ======== ======== ======== ========
Total Investment Based on net asset value per share .41% 5.45% 9.71% 5.21% 6.06%
Return:* ======== ======== ======== ======== ========
Ratios to Expenses, net of reimbursement 1.54% 1.41% 1.31% 1.26% 1.22%
Average ======== ======== ======== ======== ========
Net Assets: Expenses 1.54% 1.41% 1.39% 1.41% 1.44%
======== ======== ======== ======== ========
Investment income--net 3.88% 4.08% 4.39% 4.41% 4.91%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 32,886 $ 37,204 $ 41,137 $ 47,236 $ 49,978
Data: ======== ======== ======== ======== ========
Portfolio turnover 47.52% 125.23% 94.59% 90.22% 52.33%
======== ======== ======== ======== ========
<FN>
*Total investment returns exclude the effects of sales charges.
++Amount is less than $.01 per share.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch North Carolina Municipal Bond Fund
July 31, 1999
<TABLE>
FINANCIAL INFORMATION (continued)
<CAPTION>
Financial Highlights (continued)
Class C
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. 1994++ to
For the Year Ended July 31, July 31,
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.00 $ 10.87 $ 10.36 $ 10.28 $ 9.80
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .41 .44 .45 .45 .37
Realized and unrealized gain (loss) on
investments--net (.35) .13 .51 .08 .48
-------- -------- -------- -------- --------
Total from investment operations .06 .57 .96 .53 .85
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.41) (.44) (.45) (.45) (.37)
Realized gain on investments--net (.20) --++++ -- -- --
In excess of realized gain on investments--net (.10) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.71) (.44) (.45) (.45) (.37)
-------- -------- -------- -------- --------
Net asset value, end of period $ 10.35 $ 11.00 $ 10.87 $ 10.36 $ 10.28
======== ======== ======== ======== ========
Total Investment Based on net asset value per share .41% 5.35% 9.50% 5.20% 8.87%+++
Return:** ======== ======== ======== ======== ========
Ratios to Expenses, net of reimbursement 1.64% 1.51% 1.41% 1.37% 1.37%*
Average ======== ======== ======== ======== ========
Net Assets: Expenses 1.64% 1.51% 1.49% 1.51% 1.57%*
======== ======== ======== ======== ========
Investment income--net 3.78% 3.98% 4.28% 4.29% 4.67%*
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands). $ 2,404 $ 2,527 $ 2,052 $ 1,772 $ 713
Data: ======== ======== ======== ======== ========
Portfolio turnover 47.52% 125.23% 94.59% 90.22% 52.33%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales charges.
++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, 1999
<TABLE>
FINANCIAL INFORMATION (concluded)
<CAPTION>
Financial Highlights (concluded)
Class D
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. 1994++ to
For the Year Ended July 31, July 31,
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.01 $ 10.88 $ 10.37 $ 10.29 $ 9.80
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .46 .49 .50 .50 .41
Realized and unrealized gain (loss) on
investments--net (.35) .13 .51 .08 .49
-------- -------- -------- -------- --------
Total from investment operations .11 .62 1.01 .58 .90
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.46) (.49) (.50) (.50) (.41)
Realized gain on investments--net (.20) --++++ -- -- --
In excess of realized gain on investments--net (.10) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.76) (.49) (.50) (.50) (.41)
-------- -------- -------- -------- --------
Net asset value, end of period $ 10.36 $ 11.01 $ 10.88 $ 10.37 $ 10.29
======== ======== ======== ======== ========
Total Investment Based on net asset value per share .92% 5.88% 10.05% 5.75% 9.39%+++
Return:** ======== ======== ======== ======== ========
Ratios to Expenses, net of reimbursement 1.14% 1.00% .90% .85% .85%*
Average ======== ======== ======== ======== ========
Net Assets: Expenses 1.14% 1.00% .98% 1.00% 1.05%*
======== ======== ======== ======== ========
Investment income--net 4.28% 4.49% 4.79% 4.81% 5.28%*
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands). $ 3,057 $ 2,534 $ 2,132 $ 1,880 $ 1,377
Data: ======== ======== ======== ======== ========
Portfolio turnover 47.52% 125.23% 94.59% 90.22% 52.33%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales charges.
++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, 1999
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's financial statements are prepared in accordance with
generally accepted accounting principles, which may require the use
of management accruals and estimates. 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) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(f) Dividends and distributions--Dividends from net investment
income are declared daily and paid monthly. Distributions of capital
gains are recorded on the ex-dividend dates. Distributions in excess
of realized capital gains are due primarily to differing tax
treatments for post-October losses.
Merrill Lynch North Carolina Municipal Bond Fund
July 31, 1999
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 Distribution Plans with Merrill Lynch Funds
Distributor ("MLFD" or the "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: .55%
of the Fund's average daily net assets not exceeding $500 million;
.525% of average daily net assets in excess of $500 million but not
exceeding $1 billion; and .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 .25% .25%
Class C .25% .35%
Class D .10% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("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, 1999, 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 $161 $ 1,963
Class D $765 $12,704
For the year ended July 31, 1999, MLPF&S received contingent
deferred sales charges of $38,152 and $396 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, 1999 were $22,886,148 and $29,482,490,
respectively.
Net realized gains for the year ended July 31, 1999 and unrealized
gains (losses) as of July 31, 1999 were as follows:
Realized Unrealized
Gains Gains (Losses)
Long-term investments. $ 361,280 $ 474,300
Financial futures contracts -- (39,062)
---------- ----------
Total $ 361,280 $ 435,238
========== ==========
As of July 31, 1999, net unrealized appreciation for Federal income
tax purposes aggregated $474,300, of which $1,350,248 was related to
appreciated securities and $875,948 was related to depreciated
securities. The aggregate cost of investments at July 31, 1999 for
Federal income tax purposes was $47,468,835.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest
transactions was $488,357 and $3,435,751 for the years ended July
31, 1999 and July 31, 1998, respectively.
Merrill Lynch North Carolina Municipal Bond Fund
July 31, 1999
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
Shares sold 180,178 $ 1,962,704
Shares issued to share-
holders in reinvestment of
dividends and distributions 37,084 399,625
---------- -----------
Total issued 217,262 2,362,329
Shares redeemed (134,277) (1,461,265)
---------- -----------
Net increase 82,985 $ 901,064
========== ===========
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 B Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
Shares sold 413,519 $ 4,501,793
Shares issued to share-
holders in reinvestment of
dividends and distributions 121,842 1,314,826
---------- -----------
Total issued 535,361 5,816,619
Automatic conversion of
shares (11,637) (124,422)
Shares redeemed (727,695) (7,840,365)
---------- -----------
Net decrease (203,971) $(2,148,168)
========== ===========
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 C Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
Shares sold 48,122 $ 523,208
Shares issued to share-
holders in reinvestment of
dividends and distributions 7,428 79,965
---------- -----------
Total issued 55,550 603,173
Shares redeemed (52,919) (576,849)
---------- -----------
Net increase 2,631 $ 26,324
========== ===========
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 D Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
Shares sold 121,293 $ 1,328,441
Automatic conversion of
shares 11,637 124,422
Shares issued to share-
holders in reinvestment of
dividends and distributions 11,597 124,949
---------- -----------
Total issued 144,527 1,577,812
Shares redeemed (79,545) (845,389)
---------- -----------
Net increase 64,982 $ 732,423
========== ===========
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
========== ===========
Merrill Lynch North Carolina Municipal Bond Fund
July 31, 1999
<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, 1999, 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 procedures included confirmation of securities
owned at July 31, 1999 by correspondence with the custodian and
brokers. 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, 1999, 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, 1999
</AUDIT-REPORT>
Merrill Lynch North Carolina Municipal Bond Fund
July 31, 1999
OFFICERS AND TRUSTEES
Terry K. Glenn, President and Trustee
James H. Bodurtha, Trustee
Herbert I. London, Trustee
Robert R. Martin, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Arthur Zeikel, Trustee
Vincent R. Giordano, Senior Vice President
Hugh T. Hurley III, Vice President
Kenneth A. Jacob, Vice President
Donald C. Burke, Vice President and Treasurer
Alice A. Pellegrino, 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
